Top 10 Reasons Customers Choose SAP for Business Transformation

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Many CEOs have told us that business transformation needs to be done effectively and efficiently, without much disruption to the business. And it should be a continuous process, not a one-time event. Continuous business transformation, accomplished over time, requires a new degree of flexibility and adaptability in all parts of the enterprise. So how do you get ready to change and continue to change?

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Top 10 Reasons Customers Choose SAP for Business Transformation

  1. 1. SAP INSIGHT TOP TEN REASONS CUSTOMERS CHOOSE SAP FOR BUSINESS TRANSFORMATION
  2. 2. Table of Contents CEO Notes 1 #1: Undisputed Market Leadership 4 #2: Primary Focus on Enterprise Applications 6 #3: Relentless Focus on Customer Value 7 #4: Deep Industry Capabilities 10 #5: Commitment to Quality 12 #6: Focus on Customer Satisfaction 13 #7: Superior Technology Architecture 14 #8: Clear Long Term Vision 15 #9: Strong Partner Ecosystem 18 #10: Safe Choice in an Uncertain Landscape 19 Conclusion 21
  3. 3. TOP TEN REASONS CUSTOMERS CHOOSE SAP FOR BUSINESS TRANSFORMATION by Chakib Bouhdary & Alok Goyal
  4. 4. CEO NOTES SAP is a customer-focused company. That's why SAP Because of this shift in customer needs, SAP has grown organically, while other enterprise changed its approach to technology and developed software companies have shrunk or stagnated. Even Enterprise Services Architecture® (ESA), the SAP though these competitors believed they understood blueprint for a service-oriented architecture. ESA is their customers, in reality, SAP knows its customers as flexible and adaptable as the companies must be. better than anyone else. SAP has been the global SAP created ESA to allow companies to minimize leader in enterprise applications, designing products the negative aspects of their IT complexity while and services to meet the needs of enterprises, for 32 maximizing the capacity of their legacy systems, years. More important, during each phase of the allowing them to integrate with one another and technological evolution that has occurred over with those of suppliers and customers. More those three decades, SAP has changed its approach, important, ESA will allow companies to develop added capabilities, and simply did what it took to new composite applications that will provide a meet customer needs and demands and continue to source of competitive advantage. In short, because succeed. of customers - and working with them - SAP has changed its technological approach time and time For example, companies around the world now again, accommodating new demands to make sure realize they must transform their business in several SAP customers are best-run businesses - which has different ways: led directly to global market leadership. To compete in a global market; To meet customer demands and needs more THE LOGICAL FALL-OUT effectively than the competition; Of course, any market leader will be criticized by To innovate more quickly and efficiently than those who aspire to lead and cannot. And SAP has ever before; been criticized by those who do not understand the To continually develop products and services source of its customer value proposition. To answer with high quality as a given; and, those critics, and to bring together the best To comply with a new spirit of government arguments to support the assertion that SAP is a regulation. customer's company, SAP has researched the top Most important, CEOs believe such transformation ten reasons why customers choose SAP for business should be continual - not one time, but over time, transformation. To summarize, our research found thereby requiring a new degree of flexibility and that companies choose SAP because of the following adaptability for all parts of the enterprise. attributes: SAP is a customer-focused company. That's why SAP has grown organically, while other enterprise software companies have shrunk or stagnated. 1 Beaudry, Anne, Pinsonneault, Alain. A decade of IT research has proven “the importance of an individual user's perception of an IT event in managing adaptation efforts … (underscoring) the need for managers to understand how users appraise an IT event and to appreciate the importance of providing users with adequate resources so that they can adapt to it.” P. 17, “Understanding user responses to information technology: A coping model of user adaptation,” MIS Quarterly, September 2005, Vol. 29, Issue 3. 1
  5. 5. 1. Market leadership: Well over 30,000 companies created industry-specific solutions for more than use SAP in more than 120 countries. SAP is the 25 industries. undisputed leader in the enterprise applications 5. Quality: SAP has a long-term commitment to market. ensuring the quality of its business software. SAP 2. Focus: Enterprise applications are 100% of SAP's was ISO 9001-certified in 1994.2 In 2002, a study by business. It is all we do. Our major competitors the U.S. National Institute for Standards and are much less focused. Oracle's application Technology estimated the cost of software bugs business represents 24% of its revenue and only to U.S. businesses at US $60 billion a year; in 2003, 12.5% of its profits. the Standish Group estimated that only 34% of software projects are on time and within budget.3 3. Customer value: The SAP approach specifically Yet SAP, understanding the negative impact of focuses on the value that a customer these slippages on businesses, has worked to organization needs from SAP products and maintain world-class standards of quality and services in all respects - from the strategy that productivity. SAP shipped the mySAP™ ERP begins the process to the end user, whose solution one month early. By contrast, Oracle 11i understanding and appreciation of the specific was shipped four years later than originally benefits of the system are the only way to ensure anticipated. the achievement of the strategic goals.1 The proof of SAP's enduring customer value focus can be 6. Customer satisfaction: The numbers tell the shown in its continuing attraction of new story: customer loyalty continues to increase. customers and retention of existing ones. After Customer likelihood to implement SAP solutions all, 30% of SAP's order entries come from new in the future has increased 10% from 2002 to 2005. customers and a full 70% from existing Moreover, and perhaps more important, customers. Just as important, new customers customer advocacy has increased. In North have contributed 36% of contracts in 2005, America, customer likelihood to recommend compared to 32% last year. SAP increased by 12% from 2002 to 2005.4 4. Industry depth: SAP penetration is greater than 7. Superior technology: SAP invests more in 50% in every one of the industries represented by R & D than any of its competitors. SAP has more the Global 500 companies. The company has than 10,000 developers focused on driving Customer likelihood to implement SAP solutions in the future has increased 10% from 2002 to 2005. Moreover, and perhaps more important, customer advocacy has increased. In North America, customer likelihood to recommend SAP increased by 12% from 2002 to 2005.4 2 ISO 9000 is the most prominent standard in the world for ensuring manufacturing quality. 3 Davenport, Thomas, “The Coming Commoditization of Processes,” Harvard Business Review, May, 2001. 4 SAP America customer satisfaction survey. 2
  6. 6. innovation through the SAP product line. SAP customers by providing complementary product capabilities and broader access to SAP 8. Clear vision of innovation: SAP has always had consultants. a clear vision for its technology based on a strategy setting defined goals for true innovation. 10. Stability: One reason why customers choose Already, SAP generates more than 50% of its SAP solutions is that SAP offers a safe and stable business with solutions that were new to the option amidst an industry turmoil, perhaps best market in the last five years; moreover, SAP will characterized by Oracle's long drawn-out generate more than 50% of its business five years acquisition battle with PeopleSoft and its from now with new solutions. It is this type of continued focus on M&A-led strategy, as most dedication to innovation that has made SAP a recently illustrated by the proposed merger with pioneer through technology transitions - and Siebel. As Enterprise Applications Consulting SAP's dedication to its customers that has helped (EAS) has found in detailed research of the guide them through those transitions, from PeopleSoft merger, “the results of a prolonged mainframe (SAP R/2®) to client server (SAP R/3®) hostile resistance to a hostile takeover attempt to service-oriented architecture (ESA). In the [can have a far greater negative impact] with current evolution to a service-oriented respect to customers of both the acquired and architecture, SAP will develop greater levels of acquiring company.”5 After all, it is the collaboration with industry-leading companies customers who risk their business and operating such as Microsoft and Adobe. These partnerships profits, as opposed to the small share of profits are essential, because the process is inherently that come from Oracle's applications business. more open and because ESA is based on adding This SAP Insight provides further evidence and more capabilities to business processes as they explanation for each of these attributes. We hope evolve into new processes as a source of that the frank discussion will be useful as you make competitive advantage. important technology investment decisions 9. Vast partner network: SAP has developed a affecting the future of your company. strong, loyal, and unparalleled partner ecosystem. These partners range from technology companies to professional services organizations. Partners enhance the value for Already, SAP generates more than 50% of its business with solutions that were new to the market in the last five years; moreover, SAP will generate more than 50% of its business five years from now with new solutions. 5 Greenbaum, Joshua, p. 3, “Hostile Takeovers, Hostile Resistance, and Customer Choice: An Impact Analysis of the PeopleSoft Takeover by Oracle Corp,” Enterprise Applications Consulting, Spring 2005. 3
  7. 7. 1 UNDISPUTED MARKET LEADERSHIP SAP is the undisputed leader in the enterprise An expanding role as market leader in every applications market, providing the scale, major function and geography. Historically, SAP experience, and ecosystem required to was only considered the strongest in enterprise continually create and increase customer value. resource planning - the “ERP leader.” Today, SAP's leadership within every major functional however, SAP leads in almost every major functional area allows companies to enjoy best-of-breed market. SAP's leadership in supply chain capabilities in an integrated suite. Further, management (SCM) rivals its leadership in ERP. continued leadership lowers customer Even in customer relationship management (CRM), investment risk; SAP will continue to invest in SAP has more relative market share than Siebel.7 its customers' success. Finally, the company is Also, SAP's market leadership extends to all regions, committed to technological innovation, the and not just EMEA. foundation of SAP's appeal for customers. Overall market leadership. With more than 30,000 customers in more than 120 countries, SAP continues to grow faster than the market.6 SAP is nearly three times as large as Oracle/PeopleSoft in terms of new license revenue. While SAP was earlier perceived to be a “large-company only” solution, it is now a leader in the midmarket as well. SOFTWARE REVENUE TOTAL REVENUE INDUSTRIES SOLUTIONS SAP SAP Discrete 16% FI 21% #1 #1 SAP SAP SAP SAP Process 27% #1 HR 22% #1 SAP SAP +15% +13% CP / Retail 19% #1 SCM 16% #1 SAP SAP Services 20% CRM 19% #1 #1 Rest of Rest of Market Market Fin. SAP SAP 20% SRM 23% Services #1 #1 -3% +5% SAP SAP Public 19% PLM 13% #1 #1 Source: SAP analysis, market analysis and financial analyst estimates Currency Conversion based on quarterly Euro- Market share data 2004 based on license revenues /preliminary Fixings (Frankfurt am Main) Rest of Market defined as a subset of approximately 30 software vendors Sources: SAP Analysis 2005, based on preliminary data In Every Aspect of Analysis, SAP Leads the Market 6 All data based on FY 2005 7 SAP analysis; based on FY '05 4
  8. 8. A growing leadership base. Despite M&A activity by SAP Leads Peers SAP's competitors, SAP continues to strengthen its Peer Group Shares – Total Software Revenue market lead.8 In the last three years, SAP's license Rolling 4 quarters revenue has grown at 10% annually, while Oracle's (based on software revenue in US$) new license revenues have declined by 0.6% 58% 57% annually.9 Oracle's new license revenues in Q1 '05 50% 51% 52% 53% 53% 54% 55% 55% 48% SAP1) shrank by 9% (compared with Q1 '04), while SAP's 44% 45% new license revenue grew by 24%.10 Globally, as well as in the United States with five platforms, SAP's ORCL& PSFT& RETK2) lead over its competitors is steadily growing. 22% More technological innovation value for customers. MSFT1)2) 12% SAP's market leadership gives SAP the scale and the SEBL1) 8% ecosystem leverage that creates more value for its Q2 01- Q3 01- Q4 01- Q1 02- Q2 02- Q3 02- Q4 02- Q1 03- Q2 03- Q3 03- Q4 03- Q1 04- Q2 04- Q3 04- Q1 02 Q2 02 Q3 02 Q4 02 Q1 03 Q2 03 Q3 03 Q4 03 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05E customers. SAP, for example, invests more in R & D Source: SAP Analysis based on Company Data and Financial Analysts Estimates 1) Forecast by Company Data and Financial Analysts (SEBL, MSFT) and SAP internal estimates 2) Fiscal year is not calendar year - Comparison based on most recent quarter (e.g. SAP Q1 vs. Oracle Q3) than any of its competitors. SAP has more than 10,000 developers focused on driving innovation through the SAP product line. In contrast, Oracle/PeopleSoft has fewer developers per platform.11 SAP can bring newer technologies and more industry-specific capabilities to market at a faster pace and at better levels of quality. SAP invests more in R & D than any of its competitors. SAP has more than 10,000 developers focused on driving innovation through the SAP product line. In contrast, Oracle/PeopleSoft has fewer developers per platform.11 8 SAP analysis; based on company data and financial analyst estimates as of April 14, 2005; comparison based on most recent quarter (e.g. SAP Q1 vs. Oracle Q3) 9 Based on application license revenues in U.S. dollars 10 SAP analysis. 11 Five code bases are Oracle E-Business Suite, PeopleSoft Enterprise, J.D. Edwards EnterpriseOne, J.D. Edwards OneWorldXE, and Retek. 5
  9. 9. 2 PRIMARY FOCUS ON ENTERPRISE APPLICATIONS Applications are in SAP's DNA. For 32 years SAP Oracle's strategic focus, in contrast, is on has created a truly global organization databases. Oracle has been in the applications committed to developing the best enterprise business for less than 16 years; as a result, less than applications that can be used in every region 24% of Oracle's revenue base and 13% of its profits and every country. These applications help come from applications. Hence it is not surprising customers become best-run businesses no that revenues from Oracle's applications continued matter where they operate by creating strategic to decline, even after Oracle acquired PeopleSoft value without disrupting operations. and J.D. Edwards. Because Oracle continues on a strategy of growth by acquisition (with the recently announced merger with Siebel perhaps providing the latest example), observers expect SAP to gain share in enterprise applications driven by its single- minded focus and Oracle to continue struggling to digest multiple acquisitions. Oracle Concentrates on Databases Oracle’s New License From Database Database vs. Applications Applications $2,926 $2,738 $2,664 $702 $605 $615 2002 2003 2004 Number of Years in Applications Revenue as Applications Operating Applications Business % of Total Profit as % of Total 32 100% 100% ~14 24% 13% SAP Oracle SAP's Laser Focus On Enterprise Applications 6
  10. 10. 3 RELENTLESS FOCUS ON CUSTOMER VALUE SAP continually creates value for customers by Customized business cases: SAP invests in focusing application development and ongoing customers' success by helping create robust support on producing benefits while reducing business cases and business-specific road maps. costs. SAP's intense organizational In 2004 more than 250 corporations worked concentration on customer value drives higher with SAP's Value Engineering team in North performance for its customers, and helps them America. In addition, SAP is working with become best-run businesses faster. ASUG12 and other third-party companies to SAP's senior leaders understand that their develop benchmarks and methodologies that customers' executives are continuously challenged help SAP customers learn about world-class to transform their businesses. These executives must best practices and develop their own solutions find ways to respond with agility to their customers' based on these practices. increasing expectations, intensified global Industry-specific capabilities: SAP provides competition, rising shareholder expectations, and industry-specific solutions for more than 25 regulatory demands. IT is a key enabler of all aspects industries. The process of developing these of this process, but can form a bottleneck in terms solution portfolios revolves around SAP's work of rising costs and complexity. SAP is continually with industry-leading companies. SAP listens to fostering real innovation with its product line, the problems articulated by their leaders, learns investing with partners and go-to-market resources about the best practices these leaders have to simplify complexity and ensure that its customers developed in response, and then invests in achieve their objectives for innovation growth. Moreover, SAP has developed key services to help creating industry-specific solutions imbued customers gain the benefits necessary to justify their with these best practices. The proof point of software investments. SAP's industry focus is the company's number- one position in discrete and process DRIVING BUSINESS BENEFITS manufacturing, consumer products, retail, SAP creates business value for its customers by professional services, financial services, and the investing in some of the key underlying enablers public sector.13 needed for any significant business transformation, A customized approach to user adoption as follows: and change management: Most large Innovation 10% 20-30% Reduction in IT Costs 40% Operation 90% Reduced IT complexity Economies of scale in support Economies of scale in infrastructure Fewer integration points 60% Lower Costs of Operation Lower maintenance costs Lower upgrade frequency Lower integration costs through NetWeaver Today 3 years from now SAP Increases the Focus on Innovation 7
  11. 11. transformation initiatives fail because of Flexibility and adaptability: SAP's product organizational resistance to change - not to the development is now centered on ESA, which is IT driving the change. In fact, IT research enabled by the SAP NetWeaver® platform. ESA studies from 1989 to 2002 showcased the provides organizations with the flexibility to overwhelming importance of user adoption to add capabilities without requiring the upgrade success with implementation.14 A key aspect of of underlying applications. With ESA, 77% of SAP's value proposition focuses on enhancing SAP customers expect that intervals between the user experience. For example, Enterprise upgrades will be longer, while 35% of Oracle Services Architecture (ESA), the SAP blueprint customers expect the upgrade intervals to get for a service-oriented architecture, is based on shorter. In addition, ESA allows companies to open standards. ESA involves the users in the flexibly add third-party capabilities and actual development process for composite integrate them with other applications, thus applications, which encourages them to providing a level of flexibility that never existed articulate their preferred type of interface. In before. addition, SAP has rolled out tools to leverage Speed to value: Companies must be able to knowledge gained during blueprinting and implement applications quickly to respond implementation for end-user training and more effectively to business problems and build documentation. Statistics show that SAP can competitive advantage. Three-quarters of SAP lower the training bill by more than 30-40%15 as implementations take a year or less.16 a result of these techniques. To help users gain direct access to the business processes they need for their jobs through user-friendly portals, SAP has developed partnerships with companies such as Microsoft and Adobe. A key aspect of SAP's value proposition focuses on enhancing the user experience. 12 America SAP User Group. 13 SAP Analysis 2005, based on 2004 license revenues market data. 14 For a full run-down of the research in this area, and the conclusions drawn from it, please see Beaudry and Pinsonneault, op cit. 15 SAP analysis, based on experience with customers. 16 Internal SAP data. 8
  12. 12. DECREASING IT COMPLEXITY AND economies of scale and embedded functionality COSTS offered in SAP NetWeaver. In addition to driving business benefits, SAP also 2. Lowering costs of operations and increasing helps CIOs contain rising IT costs. SAP works with their functionality: SAP offers the most customers to lower their total IT costs as a comprehensive support services at the lowest percentage of revenue, and reduce the budget cost. SAP offers standard support at 17% required to maintain existing applications to allot a compared to 22% for Oracle, thus lowering larger share of the IT budget for process innovation. ongoing maintenance costs. In addition, SAP SAP addresses these issues in the following ways: NetWeaver architecture helps reduce upgrades. With SAP NetWeaver new functionality does not 1. Lowering IT complexity: Niche applications require expensive upgrades but is developed as have created a spaghetti-like application composite applications, which build on the landscape in many companies, leading to higher underlying applications and increase their integration costs and lower flexibility. SAP functional range. Moreover, the built-in NetWeaver offers the most comprehensive open- integration capabilities within the SAP NetWeaver standards functionality that helps companies platform lower the cost of integrating SAP and develop road maps to transform their IT non-SAP applications. networks, lower integration costs, and create economies of scale in support and infrastructure. Research shows companies can reduce their IT budgets by ~1% annually just through the DRIVING VALUE AT COLGATE-PALMOLIVE Colgate-Palmolive Company is one example of a customer that transformed its businesses because of SAP's unique value proposition, realizing business benefits while decreasing IT costs. Colgate-Palmolive is a US$10 billion company, with 36,000 employees operating in more than 200 countries. Company management developed the strategic goals of enhancing the competitive position of the consumer products business, continually improving margins, enhancing service to the retail trade and internal customers, improving responsiveness to promotions, and enabling a transformation to globally standard operations. By focusing on the supply chain planning process first and then extending the capabilities across the globe, Colgate-Palmolive has achieved US$150 million worth of business benefits and US$280 million in cost savings. CASE STUDY 9
  13. 13. 4 DEEP INDUSTRY CAPABILITIES SAP delivers the most comprehensive suite of In semiconductors, for example, SAP has a robust industry-focused functionality, based on its solution to address design registration and channel work with industry-leading companies. This management issues. Similarly, within the functionality extends the capabilities of the telecommunications industry, SAP provides a very existing software solution and helps customers specific solution to budget, deploy, track, maintain, refine their own processes - according to a and phase out network assets (network life-cycle wealth of industry best practices. In management). Such industry-specific solutions exist transferring these best practices, SAP helps across every major industry and sub-industry. customers out-perform non-SAP customers A leading semiconductor equipment manufacturer across industry segments. recently switched to SAP from Oracle to support its For more than 30 years, SAP has worked to better enterprise-wide processes. One executive explained understand the specific issues that pose such that while selecting an earlier version of Oracle, he challenges for participants in individual industries. found that more than 2,700 customizations were SAP teams work with process owners in leading required to meet his company's specific needs. companies within each industry sector, learn how While evaluating an upgrade to Oracle 11i, this they solve their most pressing business problems, company found that 1,400 customizations would and embed this learning into its products. In short, still be required. When this company evaluated SAP SAP translates its work into best practices that are solutions, it found the need for only five built into industry-specific solutions, which in turn customizations within mySAP Business Suite. drives value to all customers. SAP has unparalleled access to leaders in every industry. SAP has between 50% and 100% of the Global 500 companies as customers in every single industry (see Figure 7). SAP's share of wallet within this elite group of customers increased to 24% in 2004 from 14% in 2001. n.b. the Public Sector is not covered by the Global 500 Source: Fortune Magazine, Global 500 2003; SAP Analysis 2005 80 Account coverage increased SAP customer from 73% to 74% because of 7 70 Global 500 comp new clients within Global 500 60 50 40 30 20 78% 86% 80% 90% 93% 54% 47% 40% 100% 86% 81% 10 87% 75% 76% 100% 100% 100% 63% 0 Serv.P Util HT O&G Chem CP Pharma Bank Telco ME&C A&D Mill Ins Media Mining Retail Auto Wholes SAP Dominates in All Industries CP / Retail Discrete Process Financial Services Services 10 1
  14. 14. SAP CUSTOMERS OUTPERFORM The same difference in performance is true in many COMPETITORS other industries, as the following examples Across industries, the most important result from illustrate: SAP's focus on industry best practices is that SAP In consumer packaged goods, SAP customers customers outperform their competitors. In were 63% more profitable than non-customers industrial machinery and components,17 for in 2003. example, SAP customers have outperformed their In aerospace and defense, SAP customers grew peers on key metrics such as operating margin and eight times higher revenue than that of non- days inventory in hand. In addition, SAP customers have 102% better profitability than non-SAP SAP customers in 2003. customers. Moreover, they reduced inventory at While it would be overreaching to attribute the rates eight times faster than non-SAP customers. success of these companies solely to their implementation of SAP solutions, their partnerships with SAP have certainly played a role in their ability to be more adaptive and innovative compared with peers. SAP customer’s performance Non-SAP companies’ performance Industrial Machinery & Components Engineering, Construction & Operations (Three-year Trend) (Three-year Trend) Operating Days of Inventory Operating Days Sales Margin on Hand Margin Outstanding 18.3% 2.0% 0.6% 0.5% Increase Increase Increase Increase 4.4% 15.3% 4.5% 88.9% Decrease Decrease Reduction Reduction 102% better profitability than non-SAP 19% improved profitability trend compared to customers non-SAP customers 8 times faster inventory reduction than Significantly improved collections than non- non-SAP customers SAP customers SAP Customers Are Top Performers 17 Analysis for this industry and other industries cited here is based on Stratascope; it includes only public companies in the United States. 11 1
  15. 15. 5 COMMITMENT TO QUALITY SAP has a 30-year commitment not only to shift to an Internet-based architecture for SAP's product quality but also to the quality of flagship SAP R/3 product line, was ramped up one implementation and support. The combination month ahead of schedule, resulting in a highly of this proven commitment and track record satisfied customer base. In contrast, it took Oracle helps ensure that customers can rely on their four years to release a stable version of Oracle 11i. SAP investments. QUALITY OF GO-LIVE SERVICES A key part of its customer value proposition is SAP's commitment to product and service quality. “Switching on” underlying application Specifically, three key aspects of quality are infrastructure to support complex, mission-critical fundamental to the enterprise application life cycle, business processes is an arduous, risky task. as follows: Companies risk business continuity when they go 1. Quality and timeliness of application releases live with major IT implementations. SAP provides 2. Quality of go-live services perhaps the most comprehensive services during 3. Quality of ongoing support and maintenance this critical phase. SAP begins to work with its customers three months in advance of go-live dates QUALITY AND TIMELINESS OF to ensure a smooth transition. A testimony to SAP's APPLICATION RELEASES customer go-live support is the fact that, on average, two companies in North America go live every day SAP is an engineering company at heart, with a on SAP applications, and more than three times that conservative approach to releasing only the highest- number globally. quality software to its customers. Nothing can provide better evidence than the fact that SAP met QUALITY OF ONGOING SUPPORT the ISO 9001 standard for quality manufacturing AND MAINTENANCE management in 1994. Worldwide, the same standards have been applied to more than 130,000 SAP offers the most comprehensive support services companies.18 at the lowest price to its customers. Priced at 17% of license value, SAP's basic support is much lower As a result, over many generations of technology, than Oracle's 22% maintenance fees. Oracle does not SAP has consistently delivered superior products offer many mission-critical services such as business- that manage mission-critical processes for its process support and global hotline as part of its basic customers. mySAP ERP, which marked a significant support; these services are standard for SAP. As a result, over many generations of technology, SAP has consistently delivered superior products that manage mission-critical processes for its customers. mySAP ERP, which marked a significant shift to an Internet-based architecture for SAP's flagship SAP R/3 product line, was ramped up one month ahead of schedule, resulting in a highly satisfied customer base. In contrast, it took Oracle four years to release a stable version of Oracle 11i. 18 For more information about the ISO, its standard setting, and the future for quality standards see www.iso.org. 12
  16. 16. 6 FOCUS ON CUSTOMER SATISFACTION The greatest testament to the power of SAP's And, according to an Information Week survey,21 customer value proposition is that SAP customers two-thirds of PeopleSoft customers and more than have become its biggest advocates. In fact, the results 50% of Oracle customers are not confident that of SAP's organizational focus on monitoring Oracle can integrate the two product suites. Also, in customer satisfaction illustrate how well it is the same survey, more than 85% of those surveyed working. SAP's leading industry capabilities and thought the acquisition would have a negative commitment to world-class implementations with impact on their applications strategy. real organizational change-management techniques, A significant migration to SAP from Oracle, for example, create a higher rate of user adoption. PeopleSoft, and J. D. Edwards is beginning to take One sign of the growing dissatisfaction with Oracle place. The reason given is almost always the same: has shown up in the number of customers migrating SAP's unique value proposition offers customers to SAP.19 more security - and a greater level of innovation - A steady increase in customer satisfaction provides with far less risk than remaining with the the best evidence that SAP meets and exceeds its competition. customers' expectations. And as a result, SAP SAP CustomerSatisfaction On the Rise customers are becoming its staunchest advocates. SAP Overall Satisfaction N. America The numbers tell the story: customer likelihood to 2002-2005 (2002 = 100) implement SAP in the future has increased 10% from 115 2002 to 2005. Moreover, and perhaps more important, customer advocacy has increased. In North America, 110 customer likelihood to recommend SAP increased by 105 12% from 2002 to 2005.20 Because SAP has developed a singular organizational focus on customers, 100 customers have become more loyal, more likely to 95 reinvest in SAP solutions, and more open to recommending SAP to other potential customers. 90 2002 2003 2004 YTD '05 MAKING THE SWITCH TO SAP Many companies have switched to SAP from Oracle. After a difficult process attempting to run its business on Oracle software, for example, one consumer products company became frustrated with the results. As a result, management made the switch back to SAP and has been a happy customer ever since. At first, Oracle's 11i product attracted the attention of management. Then, the company learned the Oracle 11i product was incomplete, with many quirks remaining to be worked out. Moreover, Oracle experts seemed stumped on how to fix the problems with the new solution. Frustrated by its efforts to stabilize the Oracle platform, the consumer products firm made the transition to SAP. Management believed it made the right decision when it began to read about other high-profile companies, who had been Oracle customers, made the switch to SAP. The company rolled out its SAP implementations worldwide from 2002 through 2004. CASE STUDY 19 As of the publication of this point of view, a full companies have migrated. 20 SAP America customer satisfaction survey. 21 “Customers Not Confident Of Oracle-PeopleSoft Integration,” Rick Whiting, Information Week, December 16, 2004. 13
  17. 17. 7 SUPERIOR ARCHITECTURE SAP's architecture is clearly superior to Oracle's, Second, SAP's architecture operates in real time, providing flexibility, choice, and greater value. automatically communicating any input with all Because SAP focuses product development on associated components in a business process at the process and industry functionality, SAP's product time of input. These components perform line does not disappoint customers. appropriate actions and validations prior to acceptance, thus assuring data and process integrity. In the world of technology, SAP's superior Oracle's batch-synchronized processing does not architecture not only provides flexibility but also offer these advantages. Instead, due to a data-centric choice for customers, delivering a high level of approach, Oracle customers and their users value. experience inconsistent data, which in turn First, SAP's process-centric architecture delivers real hampers their ability to make decisions or plan in business value because it eliminates or minimizes real time. Oracle's customers incur higher data custom development. SAP embeds best practices for cleansing and correction costs, as well as higher major processes into the software functionality. In compliance costs. contrast, customers require custom development Finally, SAP's architecture promotes flexibility, and extensive reconfiguration when mapping adaptability, openness, and an even greater focus on Oracle's data-centric architecture to their business superior business processes through the process. Such data-centricity generally results in development of its service-oriented architecture, higher costs for custom development, maintenance, Enterprise Services Architecture (ESA). In contrast, and migration. Oracle locks in customers with limited choices in databases, application servers, and business intelligence. SAP's development of ESA has opened the door to a new era in IT systems management. Business value Oracle’s data centric platform requires extensive Process Process Data customization to map to business processes Centric Architecture Centric Results in higher custom development costs, maintenance costs, migration costs and limited ability to leverage industry best practices Real-time visibility Oracle’s batch synchronized architecture: Real Time Transaction Batch Leads to inconsistent data Execution Architecture Processing Hampers real-time planning and decision making Results in higher data cleansing and correction costs, increased compliance risks Flexibility Inter- Oracle locks-in customers with limited database, Vendor applications server and business intelligence operability Openness choices Lock-in The Superiority of SAP Architecture & choice Results in increased costs to invest in superior functionality or limited flexibility 14 1
  18. 18. 8 CLEAR LONG-TERM VISION OF INNOVATION SAP has always had a clear vision for its SAP will generate more than 50% of its business with technology based on defined goals. SAP has solutions that are not available today. been a pioneer through technology transitions The next era of computing will be based on open and guided customers through the change, standards and a service-oriented architecture. This from mainframe (SAP R/2) to client server (SAP will engender a seismic shift from today's R/3) to service-oriented architecture (ESA). In technology architecture, involving completely new the current transition to a service-oriented paradigms for underlying software and hardware architecture, SAP will develop greater levels of infrastructure, in the way software is developed and collaboration and participation with industry- deployed, and in usability, adaptability, flexibility, leading companies. That's because the process and integration. In developing a taxonomy for this is inherently more open and because ESA is new era, The Berkman Center for Internet & based on adding more capabilities to business Society at Harvard Law School created a model for processes as a source of competitive advantage. the maturity of an open-standards strategy that In turn, SAP will offer even greater value for should include the following elements: customers, allowing them to innovate as they Interoperability evolve new processes. Open technologies Companies make long-term investments in Architecture framework enterprise application software, with five- to ten- Architecture development model year investment horizons not uncommon. Given Communication and compliance that technology changes rapidly, it is critical for Close linkage with business processes companies to choose application partners that have Linkages among operating units and agencies a clear vision, one that can not only meet today's Active management needs but adapt to the changing needs of tomorrow. Strategy for software acquisition SAP is committed to a strategy of growth through Collaborative communities22 technology innovation; today, SAP generates more SAP developed ESA with each of these elements in than 50% of its business with solutions that came to mind, testifying to its maturity and sophistication in market in the last five years. Five years from now, the global software arena. Mainframe Client Server Services Oriented Architecture One Computer for Many Many Devices per Person Monolithic Architecture Multi-layer Architecture Static Business Processes Adaptive Business Processes Dedicated Hardware Virtualized Hardware End to End Security Layers of Security A Shift in the IT Paradigm 22 P. 38, “Openness Maturity Model,” in Roadmap for Open ICT Ecosystems, published by The Berkman Center for Internet & Society, Harvard Law School, Jeffrey Kaplan, Founder and Director, Open ePolicy Group, August 2005. 15
  19. 19. As the Harvard study suggests, the new age requires SAP has developed ESA with an evolutionary, a fundamental shift in the unbundling of the collaborative, pragmatic approach. Oracle has software stack, wherein the monolithic, single proposed Fusion, which represents a complete vendor approaches of the past will give way to change in its existing product lines to a totally new multi-tier architectures that will abide by open solution. At present, however, that change is only a industry standards and be able to “connect vision with little or no progress made toward dynamically.” Such a world will require significant delivery. In contrast, SAP is working with its collaboration among industry players to drive customers to guide them through the journey to standards and create more value to the customer. open standards with as little disruption as possible Companies will play in the layer where they have to existing operations, ensuring that SAP's legacy of core competence. high-quality software is maintained. SAP is on Track Business mySAP ERP ESA Process Solutions ESA with ESA delivered on Launched Platform (BPP) on BPP Delivered Netweaver Launched 2003 2004 2005 2006 2007 Netweaver 1,300 mySAP 500 Enterprise BPP available Complete Suite Launched ERP customers Services for ISVs and all industry signed delivered solutions All-In-One delivered on 1500 + 150,000 available on BPP Netweaver developers on BPP references SDN released 100 mySAP 2210 partners ERP customer onboard success stories published 16 1
  20. 20. SAP launched ESA in 2003 and continues to invest Oracle announced the Fusion road map in early all its engineering resources to realize a structured 2005, but did not include a concrete road map, and pragmatic path to a service orientation. In fact, partner collaboration, customer upgrade path, and SAP is already more than halfway to realizing its other details. In addition, its bid to create a new goals, and through the years, has delivered every application that is different from any of its five single promise. Today, ESA has more than 1,500 existing applications code bases poses time and references, more than 2,200 partners, and more than quality risks for customers. 500 services already delivered. ESA is not just a concept or a marketing hype; it is a reality that SAP and its customers live and breathe every day. The next era of computing will be based on open standards and a service-oriented architecture. This will engender a seismic shift from today's technology architecture, involving completely new paradigms for underlying software and hardware infrastructure, in the way software is developed and deployed, and in usability, adaptability, flexibility, and integration. 17
  21. 21. 9 STRONG PARTNER ECOSYSTEM SAP has developed a strong, loyal, and an context of the environment they know best, unparalleled partner ecosystem. These partners Microsoft Office. Mendocino will simplify the way range from technology companies to information workers access and use their SAP professional services organizations. The applications, revolutionizing their potential, and partners enhance the value for SAP customers resolving another user issue. by providing complementary product SAP has also teamed with H-P to deliver capabilities, and also provide a broader access breakthrough business intelligence flexibility and to SAP consultants. performance. The development project has As outlined previously, SAP recognizes the produced the industry's first low-cost, appliance- importance of the partner ecosystem both for the like offering designed to provide breakthroughs in partners' and the customers' mutual success. The both performance and flexibility for the SAP ESA vision is supported by leading technology NetWeaver Business Intelligence component. companies across many different domains such as In contrast, Oracle continues to adopt a “go it security, productivity applications, storage, alone” approach. In an era where the application middleware, networking, and performance stack is unbundling, Oracle is attempting to management. Partners such IBM, Adobe, and integrate vertically by being the “all-in-one” stack Microsoft endorse SAP's strategy and dedicate provider of application servers, databases, and significant resources to the partnership. applications. Such a strategy may alienate partners Moreover, Microsoft has begun to develop while reducing flexibility, choice, and value for groundbreaking arrangements with technology customers. partners that will offer unique and unprecedented Partner resources are only likely to decline for value to customers. With Microsoft, for example, Oracle as these companies are forced to support a SAP will develop Mendocino,23 which will address completely new platform as well as existing the inefficiencies and inconsistencies inherent in the platforms no longer supported by Oracle itself. gap between desktop productivity tools and enterprise applications - and the pressing need to connect users with enterprise processes in the SAP Broadens the Idea of Partner 23 Code name of the project, not an actual product name. 18 1
  22. 22. 10 SAFE CHOICE IN AN UNCERTAIN LANDSCAPE SAP continues to provide the safest, most stable Oracle's bid to “beat” SAP through acquisitions is option in the technology industry. SAP's questionable, since most technology M&As - strategy of growth through innovation and particularly enterprise application software - have scope contrasts with Oracle's strategy of failed. History tells us that once-successful growth through merger and acquisition, one companies such as i2 and BaaN have nearly perished that is inherently risky for customers. After all, through their extravagant acquisitions. In a detailed technology mergers, like most mergers, rarely study of the Oracle-PeopleSoft merger, for example, meet expectations. Merger history further Enterprise Applications Consulting noted: demonstrates that Oracle's challenges are “… enough of the larger acquisitions involving immense since it is taking multiple risks publicly-held companies (in the software simultaneously, compounding the odds against industry) have foundered to make guarantees of success. M&A success difficult to predict. … The reasons One of the reasons customers choose SAP is because for failure … revolve around a consistent set of SAP offers the only safe and stable option in an problems. Cultural mismatches are probably the industry rocked by turmoil. The best evidence is most common problems. … Poor due diligence demonstrated by Oracle's long drawn-out and financial miscues are another common set acquisition battle with PeopleSoft and its recent of problems. … Technical integration is also a acquisition of Siebel Systems. In neither case could major problem.” the merger be called “friendly.” In both cases, the “A far greater negative impact can be seen in the difficulties Oracle faces in merging cultures and results of a prolonged resistance to a hostile technology are legion. takeover attempt, such as took place in the Oracle's mergers are inherently risky both for PeopleSoft acquisition by Oracle. This is Oracle and its customers. The customers' risk, particularly true with respect to customers of however, is far greater. At stake is their business and both the acquired and the acquiring company. operating profits - as opposed to the small share of This impact can outlast the cessation of hostilities Oracle profits generated by its applications business. and severely limit the ability of a company like Oracle faces Are you willing to take a four key challenges risk with your choice? Platform consolidation is difficult to achieve Technology Cultural clashes are M&A’s have difficult to transcend 100% rarely Technology transitions are succeeded challenging to charter Larger scale merger skills 12.5% are limited Oracle’s Risk Your Risk Oracle's Four Daunting Challenges 19

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