Lucius and thread,
Nice story on SAP in September 14 issue of Business Week
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SAP'S EXPANDING
UNIVERSE
The software giant's ambitious new goal:
To be everywhere business is taking place
For a couple of years now, success has come to Germany's
SAP on a silver platter. The $3.5 billion software giant
capitalized on fears that two looming events, the new
millennium and the creation of a single European currency,
would wreak havoc on multinationals' information-technology
systems. Instead of combing through their computer systems
looking for bugs, many of SAP's 8,000 customers just bought
new software packages. This contributed to sales growth of
62% in 1997. But it's getting late for companies to install
all-new software before the year 2000, and now SAP must
figure out what to do for an encore.
Its executives have come up with an ambitious strategy. SAP
already dominates the $12 billion market for so-called
enterprise software, programs that can manage all of a
corporation's internal operations in a single powerful network.
Now, SAP plans to branch out beyond its customers' walls,
building bridges to their suppliers and customers. In this
scheme, a vast SAP-based network could track an entire
industrial process, from mining iron ore in Minnesota to
steelmaking in Indiana to car production in Detroit--all the way
to selling autos in showrooms on the Web. The payoff, it is
hoped, would be entire industries run as efficiently as a single
plant, with razor-thin inventories and the leanest of
workforces.
FRIENDLIER SOFTWARE. With time, if co-chairman Hasso
Plattner has his way, SAP will grow from a faceless industrial
supplier into a global brand name. The plan is to push into
consumer markets, from department stores to Internet malls.
At a Los Angeles users' convention on Sept. 13, Plattner will
unveil a strategy that could position the company virtually
everywhere business takes place.
But to gain that stature, SAP must master new markets where
a host of competitors is already entrenched--and where more
are expected. ''There are loads of little guys in those markets,
and eventually Microsoft Corp. will be there,'' says Neil Iscoe,
chief executive of Focus Systems Inc., a maker of legal
software in Austin, Tex.
Nonetheless, SAP is plowing ahead. All around its
headquarters in rural Walldorf, in Germany's lush Rhine
Valley, workers manning a forest of cranes are piecing
together a vast complex of new SAP buildings. The company
will hire 5,000 employees this year, expanding its workforce
by 35%, and is expanding research labs from Palo Alto to
Minsk.
Plattner is keeping his investment numbers mum. But with a
research and development budget topping $500 million, SAP
can spend more money per year on research than most of its
rivals rack up in sales.
The challenge for SAP, a company long known only to the
techies in large companies, is to come up with a stream of
snazzy, customer-friendly applications. Here, Plattner is
looking for help. In the past year, SAP has begun placing
pieces of its bread-and-butter enterprise software package,
called R/3, on the Web.
The strategy has its risks, since those pieces include the
computer code that forms the basis of SAP's success. But the
idea is that by sharing the code with developers worldwide,
SAP will encourage them to build a panoply of applications
for its systems.
This spells a fundamental shift for the giant. Traditionally,
SAP's systems have been carefully crafted, though often
inflexible, marvels of German engineering. Installing these
programs, sometimes at a price topping $100 million, has
blossomed into a $30 billion industry. Now, Plattner wants to
distribute his system far and wide, hoping to make SAP's
code the lingua franca of global business. ''For the first 25
years of our history, we provided data to people,'' he says.
''For the next 25 years, we'll handle interactions between
people.''
As a first step, Plattner plans to broaden the company's
offerings. He is preparing simpler, cheaper versions of SAP's
enterprise software, providing financial, warehouse, and
human resource packages for small and medium-size
companies. Meanwhile, new co-chairman Henning
Kagerman, a former head of SAP's European operations, is
overseeing the development of new software for still
uncovered niches within the 17 industries SAP caters to, from
utilities to chemical plants. These could include programs to
reconfigure auto assembly lines for greater efficiency, for
instance.
Until the new products start bringing in profits, SAP's
breakneck growth pace is sure to subside. After a 66% sales
increase in the first half of this year, ''I see a dip coming,''
Plattner says. Analysts believe that SAP's sales and earnings
growth will slow to 35% this year and next. That's partly
because the giant multinationals that have fueled SAP's
business so far are mostly set up with enterprise systems.
And in the current market climate, many corporations may opt
for less costly add-ons. Even so, analysts expect SAP to
outpace the competition. ''They're still gaining market share,''
says Loretta Morris, European portfolio manager at Nicholas
Applegate in San Diego.
While SAP embarks on its new path, it is also wrestling with
generational change. Plattner's co-founders--the former
IBMers who set up the company 26 years ago--are moving
from executive into advisory roles. Dietmar Hopp, the
technical whiz behind the enterprise software, last spring
switched to a lower-profile post on the advisory board. And
Plattner wants to hire young talent to guide the company in
untried markets. In March, SAP raised its stake in a small
German sales-force automation company, Kiefer & Veittinger,
to 80%. That gives it a foothold in technology-aided sales, a
market that is expected to grow from $1.4 billion to $3.8 billion
in the next two years.
Indeed, it is in sales and marketing that SAP faces its biggest
hurdles. First, the company has a reputation for torturous
installations, despite a worldwide team of troubleshooters. It
was a rocky installation that led Dell Computer Corp. to
abandon SAP last year halfway through a multimillion-dollar
enterprise project. And SAP faces a $500 million lawsuit from
the trustee for bankrupt FoxMeyer Corp., charging that the
failure of an SAP system led to the Carrolton (Tex.) drug
distributor's collapse--a charge SAP executives hotly deny.
GATES AT THE GATE. Second, nimble competitors now
occupy all the niches SAP plans to attack. In fact, many of
SAP's biggest customers have already installed other
systems for sales and marketing applications. But like other
industry leaders, SAP has the clout to bring products to
market far later than its rivals. It can appropriate effective
features from the pioneers, correct their mistakes, and try to
wrest away market share by offering seamless integration
with its massive installed base.
Eventually, SAP is likely to run head-on into that other
software titan, Microsoft. For now they are partners, working
together on loads of applications. Microsoft Chairman William
H. Gates III, however, has declared an ambition to build the
nervous system for business--the same goal as Plattner's.
For the next few years, at least, the world looks big enough
for both of them.
By Stephen Baker in Paris |
