INTRODUCTION INTRODUCTION… Kagermann, CEO of SAP AG, believed that emerging Internet-based Technologies and standards known collectively as “Web services” soon would transform the $79.8 billion enterprise software applications industry. The implementation of SAP’s recently defined Web services strategy was based on framework SAP called the Enterprise Services Architecture (ESA). As he flipped through the report, Kagermann reflected upon the sweeping internal transformation that SAP still needed to complete his stated goals.
INTRODUCTION INTRODUCTION… In addition to requiring a costly research and development effort, capitalizing on SAP’s new growth initiatives required far-reaching change that would test the very core of the company: its leadership, its culture, its values, its processes. On the one hand, Kagermann felt confident that SAP eventually would make the adjustments necessary to prolong its financial success in a future dominated by Web services. On the other hand, competitors including Oracle, Microsoft, and IBM were investing billion of dollars into similar growth initiatives. Kagermannrecognized that time to market was critical.
INTRODUCTION INTRODUCTION… 1 2 3 As Kagermann deliberated his options, three questions recurred in his mind. How could he determine whether the current pace of execution regarding the new growth strategy was right? How should he sequence the rollout of changes still required? How should he balance resource allocation between short and long-term opportunities?
INTRODUCTION INDUSTRY AND COMPANY OVERVIEW… Enterprise software applications helped companies achieve cost efficiencies, make better decisions, and increase customer value. Enterprise applications constituted an approximately $80 billion worldwide market in 2005, with compound annual growth in the range of 7.5 percent projected through 2010. In 2005 In 2006 SAP reported that its license revenues for business applications over the most recent four quarters were more than three times those of its closest competitor, Oracle. However, Oracle recently had made aggressive moves to consolidate the industry. SAP’s share of the worldwide enterprise applications market by total revenue was approximately 9 percent, the largest of any industry player.
INTRODUCTION INDUSTRY AND COMPANY OVERVIEW… The dynamics of the enterprise software industry were marked by “competition”. The fact that SAP and Oracle were fierce competitors in the enterprise applications space, over 60 percent of SAP customers used Oracle databases to store the data used by their SAP applications. Furthermore, SAP and Oracle salespeople had been known to collaborate on joint sales opportunities.
INTRODUCTION SAP’S NEW GROWTH STRATEGY… After deliberating with his leadership team, Kagermann decided to focus on three primary growth initiatives. First, SAP would develop an innovative Web services-based “platform”—a collection of software technologies, tools, and content. Kagermann referred to his platform as the business process platform, or BPP for short, and it represented the tangible product of SAP’s Enterprise Services Architecture vision. Second, SAP would intensify its focus on the SME market segment by developing more streamlined and flexible applications and expanding midmarket sales channels. Lastly, SAP would broaden the relevance of its products by offering functionality that appealed to more corporate users and by improving user interfaces. Kagermann’s corporate analysts were correct, growth strategy would result in the return of sustained double-digit sales growth and net margins of more than 30 percent until 2010 or 2011 before the BPP and other products of the new growth strategy achieved board adoption across the SAP customer base.
INTRODUCTION Growth Initiative One Kagermann positioned the BPP as an extension of an existing set of integration technologies collectively called SAP Net Weaver. The main purpose of Net Weaver was to help SAP customers integrate disparate SAP and non-SAP applications so that they interoperated seamlessly. The vision of the Enterprise Services Architecture was to make it radically easier and cheaper for customers and partners to do three things:
INTRODUCTION 1 2 3 Create software applications that did exactly what customer wanted Integrate SAP and non-SP applications and services Extend or change applications when desired Growth Initiative One
INTRODUCTION Growth Initiative One The Enterprise Services Architecture vision built upon NetWeaver technology into main areas. First, it added an “application platform” that contained a repository of hundreds of individual business processes. Second, it added a “composition platform” consisting of tools that enabled customers to combine individual enterprise services they wanted to use into full-featured enterprise applications. Open and clearly defined interfaces would make it easy for customers or partners to extend the pre-build enterprise services included in the BPP, and SAP intended to add new services to the repository on a frequent basis.
INTRODUCTION Growth Initiative One Service oriented architecture represented a new software design paradigm that leveraged the Internet to tie together disparate, loosely coupled, yet highly interoperable software functions known as Web services. To launch and support the BPP, SAP engineers needed to undertake a significant and ongoing research and development effort. Most of the enterprise services that would become part of the BPP already existed in one or more SAP applications, so each of these business processes needed to be decoupled from its “mother” application and reconciled with other similar processes that existed in other SAP applications. Furthermore, to ensure compatibility with already installed SAP applications. The entire mySAP Business Suite had to be enhanced in order to become interoperable with the service composition protocols and standards established by the BPP.
INTRODUCTION Growth Initiative Two SAP’s traditional focus on large enterprises also led it to define the SME segment more broadly than many analysts and competitors did. SAP included companies up to $1.5 billion in revenue in this customer segment. This approach caused some outsiders to question SAP’s true performance in meeting the unique needs of smaller firms. Microsoft considers any company with more than 500 PCs or 1,000 employees to be an Enterprise company, not an SME. It would hardly categorize a billion dollar company as ‘small’ or ‘midsize’. In addition, SAP’s direct sales force still served as the primary channel for acquiring midmarket customers. To increase the volume of SME sales, SP needed to move further down-market, where channels, customers, and competitors were quite different.
INTRODUCTION Growth Initiative Three SAP’s existing applications, catered to small number of highly trained users within an organization. Initially the cost and complexity of enterprise computing restricted the broad use of business applications. Compared to the average Web site, the typical SAP application required employees to receive significant training in order to understand how to use it. Despite SAP’s large number of customers, the company had significant opportunities to deliver greater value by developing more broadly appealing software and/or packaging existing functionality and information in ways more accessible to end users.
INTRODUCTION Growth Initiative Three In 2004 SAP and Microsoft had formed a broad collaboration in this area called Project Mendocino, and set out developing a product to be launched under the brand name Duet. Joint products that embedded functionality and data from a customer’s SAP applications into Microsoft’s Office suite of desktop applications.
INTRODUCTION CORPORATE TRANSFORMATION… The new growth strategy developing new products was only part of the requirement for success. To kick start the change process, Kagermann made several public announcements and implemented a broad organizational restructuring. In January 2005, Kagermann began to unveil SAP’s new growth initiatives to analysts. Over the ensuing months, he elaborated a roadmap that included completion of the BPP and related initiatives by the end of 2007, and set various financial goals for SAP to achieve by 2010. As Apotheker began to address the new growth initiatives within the SAP field organizations, Plattner looked to Agassi to drive the expanded platform vision from a development perspective.
INTRODUCTION In 2003 Kagermannannounced GOAL, short for Global Organizational Alignment. Starting at the Executive Board level, GOAL reorganized SAP along five segments of the value chain: Research and Breakthrough Innovation, Products and Technology, Production, Global Service and Support, and Customer Solutions and Operations. GOAL also established two support functions that cut across the five value chain focused groups: Finance and Administration, and Human Resources and Processes. Kagermannand Plattner had implemented a major organizational redesign called SCORE, short for Strategic Cross-Organization Realignment. SCORE attempted to increase the efficiency of the SAP organization by grouping SAP’s 17 industry and product units into three Business Solution Groups (BSGs) and by introducing more structure into the product development process. The GOAL Reorganization… In 2005
INTRODUCTION IDENTIFYING TRANSFORMATION CHALLENGES IN 2005 ... Kagermann knew that executing on the new growth strategy posed several challenges that he could not solve with organizational restructuring alone. The new growth strategy involved uncertainty, change, and the sacrifice of clear short-term opportunities. Kagermann needed strong commitment from all of his employees in order for SAP to have any chance at achieving its goals. To build understanding and maintain engagement, he committed himself to discussing the new growth initiatives with employees as much as possible, and focused resource on the Cascade initiative.
INTRODUCTION Development of New Sales and Support Models SAP had built its fortune by selling complex software system to the world’s largest organizations. This business was rife with complexities: developing highly advanced and reliable software, closing multimillion-dollar deals, maintaining 24/7 support for thousands of software installations across the globe. Being both an application platform provider and an applications provider multiplied possibilities for channel conflict, which SAP largely had avoided in the past. The question remained whether SAP could set up the right models and processes to manage the anticipated tensions between its own salesperson, ISV partners, and other channel sales partners.
INTRODUCTION Development of New Sales and Support Models Regarding customer support, in order to reach the goal of having 100,000 customers in 2010, we will need to add almost 20,000 net new customers a year for the next four years. It will be impossible to send people on site to do quality assurance for all of these projects. We have to think about some new ideas: remote servicing, automatic error data evaluation, automatic updating, and so on. Involved building more support functionality into the BPP, which deepened the dependency of support staff on SAP’s product development team. SAP also needed to expand and improve program to educate and support small ISV partners in an efficient fashion.
INTRODUCTION Increased Scope and Importance of the Partner Ecosystem SAP need to transform both our selves and the SAP brand from a high-end application vendor into a world-class provider of applications and infrastructure –‘applistructure’ as many analysts call it. So we need to put into place all of the foundations for a partner ecosystem, and build channels for the midmarket and for the small end of the market. Apothekerand his team also had to figure out successful revenue sharing models and joint sales processes that would provide incentives and structure for partners who wished to engage customers jointly with SAP’s sales force or on SAP’s behalf.
INTRODUCTION Increased Need for Development Alignment, Efficiency, and Agility The move to the BPP meant that existing SAP applications and any solutions SAP build in the future had to share architectural standards and common software components. Most SAP senior executives felt that in order to deliver upon the PP strategy, the development organization needed to be more controlled, predictable, and market-driven. Furthermore, roles needed to be more clearly defined and segmented.
INTRODUCTION Development of New Skills and Competencies… Success with the new growth strategy required skills and capabilities that SAP traditionally did not deem critical. In the past, technical aptitude and strong customer relationships were top priority. With the BPP, the entire spectrum of hoe SAP developed, sold, and supported software needed to change, especially given the important role SAP wanted external partners to play.
INTRODUCTION Development of New Skills and Competencies… Executives across nearly all functional groups pointed to skill development needs. In the future, we will have to analyze a web of interconnected systems owned by a customer, complemented by Web services from different providers, and get an impression of how these systems and services support the customer’s business processes. That requires another level of thinking, analysis, and perception. On the sales front, “We are no longer selling technology”, “We are selling business opportunity, and we have to prove the benefits. At the same time, we’re changing the business model for consulting from selling people to selling intellectual capital. To do all of this successfully, we need to change the genetic makeup of our people.
INTRODUCTION Development of New Skills and Competencies... Success with the new growth strategy required skills and capabilities that SAP traditionally did not deem critical. In the past, technical aptitude and strong customer relationships were top priority. With the BPP, the entire spectrum of hoe SAP developed, sold, and supported software needed to change, especially given the important role SAP wanted external partners to play.
INTRODUCTION Development of New Skills and Competencies... Executives across nearly all functional groups pointed to skill development needs. In the future, we will have to analyze a web of interconnected systems owned by a customer, complemented by Web services from different providers, and get an impression of how these systems and services support the customer’s business processes. That requires another level of thinking, analysis, and perception. On the sales front, “We are no longer selling technology”, “We are selling business opportunity, and we have to prove the benefits. At the same time, we’re changing the business model for consulting from selling people to selling intellectual capital. To do all of this successfully, we need to change the genetic makeup of our people.
INTRODUCTION Progress on Growing Market Share in the Midmarket... We’re hiring a ton of reps to focus on the midmarket. Efforts to build the indirect sales channel and proactively manage anticipated channel conflict were still in progress. 2006 is a critical year for us to invest in multi-channel sales models, but by the end of 2006 we will have put the foundation in place to have SAP prospering. On the support side, the responsible parties were still discussing many key issues. For 2007 to 2010, the task is now to develop the service and support portfolios that enable us to reach these figures.
INTRODUCTION Remaining Challenges... Driving successful economics of our ecosystem based on an open platform and co-innovation is critical for SAP’s future growth. Shifting to more partner-focused thought processes across the organization was still a work in process. To accelerate this process, Snabe had changed the objectives of his direct reports so that they were measured not only on SAP application revenue, but on the total revenue of the SAP ecosystem, partners included.
INTRODUCTION Remaining Challenges... To help cascade understanding of the new growth initiatives, Kagermann had leaned heavily on his corporate communications team and the Corporate Strategy Management group. To evaluate progress toward achieving SAP’s corporate goals, Kagermann and his team also had identified 34 Strategic Performance Management Objectives as part of the Best-Run SAP effort. By the beginning of 2006, Kagermann was confident that his senior executives shared a clear understanding of SAP’s strategy and what would be required to execute it. At lower levels of the organization, achieving understanding and alignment required more work. In some functional areas, translating the vision into concrete tasks that people can do to help this company deliver is extremely difficult.
INTRODUCTION Remaining Challenges... In addition, employees were still adjusting to the changes made during the GOAL reorganization and to the recent institution of more centralized development processes. In the past, people owned responsibility over areas for a given product. Now the role is different. We are all part of one big platform, and we each need to contribute a little piece to it. Most executives, though, shared confidence that given time, SAP would adjust to the various changes underway and succeed with the new growth initiatives. People just don’t change that quickly. We all need time to digest this stuff.
INTRODUCTION COMPETITIVE CHALLENGES AHEAD... While Kagermann was driving forward SAP’s growth strategy, the company’s rivals were not standing idle. For example, although the company had announced no official plans to build business applications targeted at very large enterprises, Microsoft Chairman Bill Gates had dropped some hints. Our products can scale up to cover a super, super high percentage of all businesses in the world. Moreover, Oracle also had formed several new midmarket channel partnerships and publicized, with much fanfare, an offer to debate up to 100 percent of its license fees to existing SAP R/3 customers that switched to Oracle applications. As he assessed the competitive environment, Kagermann saw time as SAP’s primary advantage: Our competitors are big, powerful companies. I would never doubt that they have the capabilities to do what we are trying to do.
INTRODUCTION COMPETITIVE CHALLENGES AHEAD... But they need more time than we do. Microsoft has to learn how to understand large enterprise. Oracle has to figure out how to bring together all these companies they have brought, which takes years. Recent reports in the press and form Apotheker’s sales team confirmed the fact that enterprise adoption of Service Oriented Architectures varied widely from company to company, and not all analysts and customers felt that the new growth initiatives were the best move for SAP. Merritt, for one, underscored the need for urgency in completing the BPP related initiatives as soon as possible
INTRODUCTION Conclusion.. Kagermannclosed the cover of the Sun-Tzu document. We have a unique window of opportunity. Last year, it was important for us to clarify the strategy and reshape the organization. Now the strategy is set and executed, we will make small changes and technical adjustments. If we executed effectively, we can change the culture with success. Kagermann was proud of the progress SAP had made over the past year, yet he knew tensions and challenges remained. Besides the persisting internal execution issues, external threats were intensifying. Peering into the chill night, he had plenty of time to plan his next moves on the drive back to Heidelberg.
INTRODUCTION SAP History.. From Start-Up Software Vendor to Global Market Leader Over the course of three decades, SAP has evolved from a small, regional enterprise into a world-class international company. Today, SAP is the global market leader in collaborative, inter-enterprise business solutions. The company now employs more than 47 804 people, whose commitment and innovative spirit pace our future success.
INTRODUCTION SAP History.. In 1970s A Real-Time Vision In 1972, five former IBM employees – Dietmar Hopp, Hans-Werner Hector, Hasso Plattner, Klaus Tschira, and Claus Wellenreuther – launch a company called Systems Applications and Products in Data Processing in Mannheim, Germany. Their vision: to develop standard application software for real-time business processing. One year later, the first financial accounting software is complete, forming the basis for the continuous development of other software components in what later came to be known as the "R/1 system." "R" stands for real-time data processing. By the end of the decade, intensive examination of SAP's IBM database and dialog control system leads to the birth of SAP R/2.
INTRODUCTION SAP History.. In 1980s Rapid Growth SAP moves into the company's first building on Max-Planck-Strasse in an industrial park in Walldorf, near Heidelberg. Our software development area and its 50 terminals are all now under one roof. Fifty of the 100 largest German industrial firms are already SAP customers. The SAP R/2 system attains the high level of stability of the previous generation of programs. Keeping in mind its multinational customers, SAP designs SAP R/2 to handle different languages and currencies. With this and other innovations in SAP R/2, SAP sees rapid growth. By the middle of the decade, SAP founds its first sales organization outside Germany, in Austria. The company makes its first appearance at the CeBIT computer fair in Hanover, Germany. Revenues reach DM 100 million (around $52 million), earlier than expected.
INTRODUCTION SAP History.. In 1980s Rapid Growth In August 1988, SAP GmbH becomes SAP AG. Starting on November 4, 1.2 million shares are listed on the Frankfurt and Stuttgart stock exchanges. Germany's renowned business journal, manager magazine, names SAP its Company of the Year – a distinction we would receive twice more in the next few years. With the founding of subsidiaries in Denmark, Sweden, Italy, and the United States, SAP's international expansion takes a leap forward.
INTRODUCTION SAP History.. In 1990s A New Approach to Software and Solutions SAP R/3 is unleashed on the market. The client-server concept, uniform appearance of graphical interfaces, consistent use of relational databases, and the ability to run on computers from different vendors meets with overwhelming approval. With SAP R/3, SAP ushers in a new generation of enterprise software – from mainframe computing to the three-tier architecture of database, application, and user interface. To this day, the client-server architecture is the standard in business software. A growing number of subsidiaries are managed out of Walldorf. The new Sales and Development Center in Walldorf officially opens it doors. It symbolizes the global success of the company. In our twentieth year, our business outside Germany exceeds 50 percent of total sales for the first time. By 1996, the company has earned 1,089 new SAP R/3 customers. At the end of the year, SAP R/3 has been installed in more than 9,000 systems worldwide.
INTRODUCTION SAP History.. In 1990s SAP celebrates its twenty-fifth anniversary in 1997 and now employs approximately 12,900 people. We continue to strengthen our industry focus and build more and more industry-specific solutions. Henning Kagermann becomes Co-Chairman and CEO of SAP AG with Hasso Plattner. On August 3, 1998, the letters S-A-P appear for the first time on the Big Board at the New York Stock Exchange (NYSE), the largest stock exchange in the world. As the decade draws to a close, Hasso Plattner, Co-Founder, Co-Chairman, and CEO announces the mySAP.com strategy, heralding the beginning of a new direction for the company and our product portfolio. mySAP.com links e-commerce solutions to existing ERP applications, using state-of-the-art Web technology.
INTRODUCTION SAP History.. In 2000s Innovation for the New Millennium With the Internet, the user becomes the focus of software applications. SAP develops SAP Workplace and paves the way for the idea of an enterprise portal and role-specific access to information. Currently, more than 12 million users work each day with SAP solutions. There are now 140,000 installations worldwide, More than 2,400 certified partners, over 26 industry-specific business solutions, and more than 75,000 customers in 120 countries. SAP is the world's third-largest independent software vendor.
INTRODUCTION SAP History.. In 2000s With service-oriented architecture and the underlying integration and application platform SAP NetWeaver, SAP is providing our customers with solutions for end-to-end business processes. With SAP NetWeaver, your company can integrate people, information, and processes within the company and beyond. To further demonstrate our commitment for ongoing innovation, growth, and market leadership, SAP acquired Business Objects in 2008. Together, SAP and Business Objects, an SAP company, offers the industry's most comprehensive portfolio of business performance and optimization solutions for companies of all sizes.
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