Transcript Project
Sub-heading
Project
SAP Critique
November 30, 2007
Agenda SAP
•
Background Facts
•
Key Problem
•
Growth Initiatives
•
Transformational Challenges
•
Current Status
•
Expansion of a key management issue
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Background Facts The largest European software company, and the third largest in the world.
• Founded in 1972 in Germany, by ex-IBM employees
Enterprise Software
• SAP is the King of the Enterprise Software market • • Early products included R/3
ERP
(Enterprise Resource Planning) Extended product offerings into
CRM
(Customer Relationship Management),
SCM
(Supply Chain Management)
Great Business Model
• Produce software that sells for millions of dollars, which has very little out of the box functionality • Revenue generated through business process consulting to make the software to have desired functionality • Additional revenue streams for training and support required to use the complex product.
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Background Facts Continued Products were well-engineered and extensible, but extremely complex, and non-integrated Attempting to develop new ESA (Enterprise Service Architecture)
•
BPP (Business Process Platform)
to integrate disparate products from SAP and other vendors • Uses SOA (Service Oriented Architecture) and web services
Face threats from all sides: Oracle and its new "Fusion" product similar to BPP, Microsoft, IBM, and open source tools
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Key Problem Key Problem that SAP is confronted with: How to transform the company and culture from the lucrative, but non-integrated legacy products developed exclusively by SAP primarily for massive customers, to a "software platform" that integrates tools from SAP and others, allows partners to extend and sell, and develops fans from smaller businesses and the non-tech savvy
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Growth Initiatives The Growth Initiatives: Addressing the Key Problem The BPP (Business Process Platform)
• Enterprise Services Architecture Partner Ecosystem • Dual Business Model: Application Platform Provider and Application Provider
Building Market Share in the Mid-market
• Providing Value to More Business Users • Defending and Building the Core Applications Business
"Best Run SAP" and Cascading the Strategy The 2005 GOAL (
Global Organization Alignment)
Reorganization
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Transformation Challenges Challenges Confronting SAP Clarification of the strategy throughout the ranks Employee motivation Development of new sales and support models
• •
Potential conflict with new and legacy models Increased scope and importance of the partner Ecosystem Increased need for development alignment, efficiency, and agility Development of new skills and competencies Integrating newly recruited talent Culture and value adoption
o Page 7
Current Status Where is SAP today?
50% of R&D goes into the platform, which is not monetizing even five percent of new license revenue
BPP is still in development
Some business process models are released, and some tools integration done, but much work remains
Adoption of BPP by customers is mixed
Progress on growing market share in mid-market is mixed
Progress on appealing to more business users is slow
Adopting partner ecosystem is still challenging
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Current Status Where is SAP today?
Big challenges remain in aligning and motivating the organization
o "Palo-Altoization" of company o Agassi's rapid rise and hiring of friends at senior level, not screened by old timers in Walldorf -- leads to Agassi departure? o What does BPP mean?
How to defend the core business while developing the new platform?
How to defend against challengers, particularly Oracle, IBM, Microsoft, and some open source players (SugarCRM)
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Current Status Financials On 01/26/06, SAP reported record revenues for FY 2005
: – 15% year-over-year growth in software revenues – 28% growth in U.S.
– 22% growth in Asia Pacific region – 13% growth in overall revenues – 14% growth in net income – Gains in market share – From Apr. 2005 to Apr. 2006, share price rose from $32.36 to $54.32
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Current Status
Software revenues, compared to same period prior year Total revenues Net income Operating margin Share price, 2 days following report
Financials
Q1 2006
+14% +13% +9% +0.4% -3.4% Page 11
Q1 2007
+10% +6% +10% unchanged +0.6%
Current Status SAP Stock Performance
• Price is at
51.22
, down from a 52-week high of 59.23 last Oct. 5th Page 12
Issue Expansion & Lessons Learned Expansion of a key Management Issue Shai Agassi left after a battle for control of engineering, and after he was passed over for CEO.
•
Was the “wunderkind”
• First non-German on the SAP board, CTO at 34, heir-apparent to CEO •
With GOAL reorg, demoted to managing the "Products Group" -- the bread and butter, but legacy products
•
Peter Zencke was given control of the Research and Breakthrough Innovation unit, responsible for the "new hotness" products like BPP.
•
Agassi was also blamed for some of the tension between Walldorf and Palo Alto.
•
Founded a green startup, “Project Better Place”, creating software for electric car infrastructure.
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