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Chuck Connecting The SAP Dots

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By Chuck Schaeffer

Are Calls for SAP's Demise Greatly Exaggerated?

Researcher Sergio Segal today released SAP Bubble Unveiled, History of an Endangered Leadership. As the title suggest, the 365 page book examines the rise and predicted decline of software giant SAP. I received the book in advance and after a dubious read, followed up with Sergio to explore his motivations and purpose.

Sergio counts over 30 years of enterprise software experience, including 15 years as CEO of a French-based software company and 10 years working for Oracle. Having left Oracle in 2007 but still being based in Redwood City, CA I was of course curious (actually wary) whether personal bias or vested interest may play a role in predicting the demise of such an iconic enterprise software company. But after serious and long discussion, I found him to be quite intelligent, with no allegiance to any SAP competitor and without an ax to grind. My conversation then shifted to understanding his objective, data, conclusions and predictions.

Despite an eye catching title suggesting the downfall of a seldom disputed market leader, the SAP story is presented as an illustration for a larger objective which is to promote a business assessment methodology called Connecting The Dots — and according to company Teradots is used to effectively examine long-term patterns of publicly available information in a way that detects trends and early warning signs that are not otherwise visible. The premise is simple enough, but begs some investigation to see whether this is a novel research-based approach that actually delivers an empirical result, or something other.

Notwithstanding the book's objective, the story remains SAP. The book illustrates many SAP examples, to which I'll offer my own responses later in this post, a few of which include:

  • Since the 1992 release of SAP R/3, the company's R&D has failed to deliver a product that has become a market leader or contributed significantly to company revenues.
  • The book suggests that SAP has incurred a pattern of failures including failed R&D, inconsistent messaging, governance gaps and lack of customer centricity, and that the company has responded to these structural issues in largest part with denial, and more so with increased marketing hype, perceptions management and diversion games.
  • Based on the prior factors, Connecting The Dots suggests that SAP is in decline. In 2009, SAP revenues reverted to 2004-2005 levels. Certainly the depressed economic climate contributed, but no other major competitor fell as much as SAP. Software sales in the 2010-2011 year are at near equivalent levels to 2006-2008.

The book suggests that SAP has entered a sustained period of decline, but is complacent and unwilling to recognize reality. In an interesting comparison, the author applies SAP symptoms to Jim Collins methodology of corporate decline made somewhat famous in his book How the Mighty Fail—and concludes SAP has entered Stage 4 (of 5). Collins explains that the first three stages are internal, and not visible from the outside. Further vetting whether the right factors were applied to this methodology is something I'll be examining in a follow-up.

In response, I think the book's conclusions should be compared to a bigger picture. At a macro level, countless readers and software company CEO's have heard my contention that the best combination of people, products and promotion wins in the enterprise software industry. Based on my own highest level assessment methodology,

  • SAP has found its groove with a top flight management team. I suspect the CEO churn is over, and I'm encouraged that the company seeks out new and non-traditional (for SAP) top talent such as Lars Dalgaard. There's clearly doubt whether a new breed of executive managers can thrive in the SAP culture, however, as I've reported in the past SAP's executive ranks are clearly transitioning from an engineering culture to one of sales and marketing.

  • The SAP Business Suite is fiercely competitive, however, it's no secret that underlying R/3 code will be two decades old in less than a year and the flagship product doesn't bode well for a future looking to the cloud. Sales OnDemand, and other SaaS-based line of business apps provide a limited transition, but will not favorably compete for customers seeking a wholesale move to the cloud. Fortunately, most of SAP's bread and butter customer base isn't in a position to rip and replace their on-premise investments. Yet. The company has time to ready a modern ERP software architecture, but the clock is ticking and past performance with Business ByDesign shows a lack of will by the software giant to both innovate and drive substantial change.

    Has SAP lost its ability to innovative? Probably but other options exist. With its might and resources it can succeed as a fast follower—but it will have to do better than coming to a burgeoning cloud market promoting a 7th mover advantage. Can the software giant still deliver ground-breaking technology solutions? Possibly. Mobile and HANA look promising, but are still yet unproven and don't represent a material impact to the company's growth or revenues. Is SAP heading toward extinction? That's far less certain.
  • Under the new leadership, and particularly from co-CEO Bill McDermott, SAP has dramatically turned up the promotion. Messaging is consistent and amplified. There is a risk here that SAP fails to deliver on its messaging and its promises, but much less risk that the company lacks clarity.

    SAP is promoting a five tenant growth strategy – selling more of the traditional ERP software and analytics, along with emerging sales in the cloud, mobile and in-memory processing. Clearly the first two segments contribute the bulk of SAPs revenues, thereby also placing the company at greater risk if these products fail to modernize in a very competitive market. While the cloud represents the single greatest industry growth factor it largely passes SAP by. The company makes strong overtures that it is about to become a cloud leader, however, it will take more than the SuccessFactors acquisition to become competitive in the cloud. Despite the hype of mobile and in-memory processing, these products are almost entirely limited to SAPs existing customer base. New prospects don't make ERP or CRM software purchase decisions based on mobile or in-memory processing.

Is the Connecting The Dots methodology and prediction of an SAP downfall the result of an objective process, deductive reasoning and empirical result – or more a matter of select or subjective interpretation? The answer to this question is more than a blog post will permit and will require much more diligence. To that end, I think this assertion deserves a more considered response, and possibly rebuttal. In the coming months I intend to apply greater scrutiny — to validate the information basis and review the conclusions not in a vacuum but also in context with the industry at large — and then come back with my own conclusion. Stand by … End

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Author  Autor: Chuck Schaeffer
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Despite the hype of mobile and in-memory processing, these products are almost entirely limited to SAPs existing customer base. New prospects don't make ERP or CRM software purchase decisions based on mobile or in-memory processing."


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