SAP's Top Challenges

There's no bigger name in Enterprise Resource Planning (ERP) software than SAP and for the first time in over a decade SAP faces some of the biggest challenges the company has ever seen. I've highlighted the top four SAP challenges as well as my recommendations in conquering these obstacles.

First, settle the lawsuit with Oracle. For a little background here, in March Oracle filed a lawsuit against SAP claiming "corporate theft on a grand scale" following the downloading of thousands of Oracle documents while logged in as customers. SAP has acknowledged that its TomorrowNow subsidiary wrongly downloaded a number of documents but the details and volume have remained silent. The SAP/TomorrowNow fiasco has harmed SAP’s credibility and threatens to cast an even bigger shadow over the software giant. Every day the legal wrangling with Oracle continues is a day where SAP’s reputation in the public market is tarnished. At the moment, most industry observers believe that the alleged theft was committed by a group of rogue staff from the semi-recent (January 2005) TomorrowNow acquisition. Most also believe that because SAP got caught with their hand in the cookie jar, Oracle would enjoy nothing more than to promote this case in the media and drag this litigation out as far as possible. Another risk to SAP is the threat of other yet unknown acts which may only come out as a by-product of what is sure to be a wide and thorough legal discovery process by Oracle. I recommend that SAP take its lumps, come clean, offer a full apology, pay Oracle damages and put into place preventative measures to assure the market this type of unethical acts does not repeat. Lastly, while TomorrowNow was a miscalculated effort to provide lower-cost support to PeopleSoft, JD Edwards and Siebel customers, and ultimately lure those customers away from Oracle, the company is now a liability and will always be a shadow on SAP. Sell off the organization and put this ugly chapter behind the company.

Second, upgrade the customer base. It’s not a good sign when only about 6,000 of 34,000 SAP customers have upgraded to the most current SAP ERP 6.0 product released over 19 months ago. Most SAP ERP customers remain on the prior MySAP 2005 version, My SAP ERP 2004 version or one of the more aged R/3 versions. SAP has a planed life for ERP 6.0 through 2010, however, it appears that most SAP users will not upgrade to this version before it is retired. In my experience, most users are fearful of the cost and complexity involved in upgrades. For SAP to advance its user base to current product versions, I recommend SAP invest in a far more streamlined upgrade architecture and provide a suite of complimentary upgrade tools.

Third, enlist a competent Business ByDesign channel. SAP’s Business ByDesign announcement in September 2007 was a welcome acknowledgement that the company will cease chastising, defaming and otherwise casting doubt on the non-stoppable software as a service (SaaS) movement. While SAP has clearly hampered Business ByDesign so that it does not threaten or cannibalize the company’s ERP 6.0 flagship product revenues, the hosted solution appears it will be quite respectable when released sometime in 2008 (hopefully). However, product release is less than half the battle in winning customer acquisitions. SAP will have to enlist a large and qualified business partner channel of VARs (Value Added Resellers) and system integrators in order to successfully distribute this product to its intended target market. The company has indicated it plans to eventually have approximately 1,000 channel partners, however, there are currently only 22. While SAP may get some converts from its 1,000 Business All-in-One partners or its 1,300 BusinessOne partners, it’s likely that conversion will not result in anywhere near the 1,000 partner goal in large part because SAP will only permit Business ByDesign partners to act as sales agents for the foreseeable future. This type of business partner relationship limits a partners product earnings to a referral fee and pretty much eliminates any opportunity to earn professional services fees. I recommend SAP reconsider the sales agent relationship and equip partners with the more traditional VAR software sales margin and fulfillment of professional services.

Fourth, carefully integrate Business Objects. I think the bigger challenge with the Business Objects acquisition is not the company and culture integration which plagues so many troubled acquisitions, but the technology integration. I strongly recommend that in the near term and over the longer term SAP resist the temptation to upgrade Business Objects industry standard technologies to SAP’s NetWeaver proprietary technology. Such a move would alienate the Business Objects ecosystem, lessen interoperability across complimentary computing platforms and reduce the product’s value proposition for most Business Objects users who use the product beyond their Enterprise Resource Planning software systems.

Posted by: Jeffrey on 01.08.2008
Posted in: IBM
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