SAP Case StudyAvimanyu Datta, Doctoral Candidate,

Washington State University

Three major points

Why has SAP America grown so rapidly? What challenges have been created by the company’s explosive growth?

What are the critical features of the Company's approach to partnering? What role has partnering played in the company’s success?

What is your evaluation of the new organization? What problems was it designed to solve?

Explosive growth: Reasons Market Forces

› Great Timing Industry was shifting from Mainframes to client server

computing. Rise of re-engineering and business process redesign.

Great Timing

› R/3 was developed for distributed computing environment. Provided companies with the needed boost to shift to

client server architecture. SAP offered assistance through needed expertise and

consulting resources to ensure successful transition.

› Sudden popularity of reengineering. R/3 was build around process orientation with embedded

set of business practices, making business processes easier.

Explosive Growth: Reasons Strategic Decisions

› Decision to be a product Company No need to add large no. of people for service provision Continuous attention to product technical superiority and

shorter learning cycles Strong Focus on Market penetration

› Lucrative role for Partners Left 80% of implementation revenues with consulting

partners (KPMG, PWC, Cap Gemini). Did not back integrate to hardware

› Focus on Limited set of industries and primarily multinationals Industry Centers of Expertise (ICOES) six industries: all

manufacturing related Large deals, huge license revenues. Large users More

Revenues

Explosive Growth: Reasons Organizational Factors

› De-centralized approach No centralized controls Focus on Sales Entrepreneurial approach make things

happen› Few items were standardized

Licensing Fees and allowable discounts Contract terms R/3 was 80% standardized and 20%

custimozable› Organized around the Initial Sale

Explosive Growth: Reasons SUMMARY

Market Forces

Strategic Decisions

Organizational Factors

Explosive Growth: Challenges Loss of Control

› No infrastructure for administrative systems› Regional managers and ICOES operated with

enormous discretion with no consistency. Wide range of labor practice coexisted within the company

Inefficient Use of Resources › Learning was not shared across regions. Same

problems were solved several times by different people.

› Utilization rates of consultants and training center were highly valuable

› No attention to hiring and staffing.

Explosive Growth: Challenges

Costly Time consuming implementations› Consultants increased implementation time to

raise revenue. Created a backlash for R/3 Brand. › SAP’s own consultants were largely trained on

the job. No time to focus on cost control.

Little Human Resource Strategy

› Could not retain skilled people especially for consultants.

› SAP being a product company showed no tangible career path for consultants.

Explosive Growth: Response to Challenges Unaddressed until 1995. But saturation

and competition made problems salient. Sensitivity to costs Recognition for infrastructure Formalizing human resource policies. Shift to a more formal professional

organization. › Hired Human Resource Director. › Shift in focus from Acquiring new accounts

to farming them.

Explosive Growth SUMMARY

Market Forces

Strategic Decisions

Organizational

Factors

Loss of Control

Inefficient use of Resources

Costly and Time consuming implementations

Little Human resource Strategy

Partnering Sales and consulting: Approach Distinctive approaches to partnering, sales and

consulting. They pioneered the concept of consulting forms implementing their product (R/3)

Helped SAP to grow rapidly without worrying about hiring in-house consultants. Did not have to worry about› Avoided additional resource commitments› Compatibility with hardware and software › Staff commitments

Partnering Sales and consulting: Approach The SAP-ecosystem comprised of

› Consulting firms› Hardware and OS› Complimentary software firms

Certification Process by competency centers and independent ratings of customer satisfaction that ensured quality and compatibility of partner’s offerings

Training System that kept partners up to date on latest R/3 releases and updates.

Widespread information about technology and business plans.

Cooperative planning based on trust, long term relationships and legal agreements.

Partnering Sales and consulting: Approach

SAP Produc

tR/3

Consulting Firms:

Implementations

Hardware Firms

Complimentary Software:

Database, OS etc

CertificationTrainingUpdatesTechnology and business plansLong term relationships

CertificationTrainingUpdatesTechnology and business plansLong term relationships

CertificationTrainingUpdatesTechnology and business plansLong term relationships

Partnering Sales and consulting: Approach To ensure Ecosystem prospers and there is a win-win strategy,

the following guidelines were enforced.

› SAP wont compete with its customers form implementations

› SAP has no interest in backward integration towards hardware and OS.

› SAP Shared its forecasts with partners, allowing them to anticipate and plan for growth. Since R/3 was the de facto standard their forecasts were accurate.

› Partners were managed by individual partner managers at SAP America.

› Partners can be dismissed if they fail on customer ratings.

› SAP Does not try top profit from training activities Sees this as activity to keep the various members of the ecosystems involved.

Partnering Sales and consulting: Problems The entire system was geared towards meeting

demands› Minimum controls on assurance, compatibility› Little attempt to regulate partner’s behavior.

Partners may have different goals than SAP› SAP wanted quick implementations› Partners stretched the implementation time. › Long implementation time Made SAP R/3 look more

expensive than it was.

SAP had loose and limited control over Partners› Apart from certification there was not much of control on

Partners.

Partnering Sales and consulting: Problems Signs of problems on emerging

markets: SMES, new multinationals New vendors emerging: PeopleSoft and

Oracle Consulting was only for getting R/e up

and running› Not using the system to its fullest potential

or building a large base of users over time. › SAP’s consultants were de motivated as

they did not have a future, stretched quite thin and spend more time at client site.

The New Organization: Response to Threat

External Threats› Increase in Competition from Oracle, Baan.

Willingness to compete aggressively through price and competition.

› Growing market perception that R/3 is expensive and time-consuming to implement.

› A need to move downstream toward the small and medium enterprises. If you help SMEs grow, then when the become large firms they may stick with your systems.

The New Organization: Response to Threat

Internal Threats› Increased Fragmentation: Districts, Regions, ICOEs

operating largely autonomously

› Little attention to cost and efficiency

› Growing need to shift from entrepreneurial to a more professional style of management, with greater attention to systems and infrastructure in order to handle SAP America’s vastly increased size and complexity

› Change in framework from generating new customers to farming old ones while generating new ones. Be partner to clients’ growth

The New Organization: Hybrid

Breaks powers of the Regional Barons, yet does not introduce a vertical market structure› Sales, Consulting and Training became

separate lines of business with separate profit and loss accounts

› Mid-market and global accounts were separated.

› The existing ICOE came under a new director of industry marketing. Those in emerging markets (SMES and service based industries) has separate lines of business under a different VP.

The New Organization: two faces

Advantages› SAP America became a “one Company”

Possible Disadvantages› Since Sales, Consulting and Training become separate

P&L, they might compete with each other. E.g., Consulting may be slower to increased its bottom-line thereby affecting repeat sales. Also coordinating issues.

› Remains largely sales driven. Marketing was still a sideline. Marketing reports to product development teams in Germany.

Professional Services Professionalizing the management:

Building up SAP America’s infrastructure, especially in the area of Human Resources.

› Assessed each region's consulting activities using the same criteria.

› Utilized consultant’s billable hours as a measurement of utilization and efficiency and then established targets.

› Formalized career paths and differentiated consulting roles as well as clear set of management assignments.

› Uniformity of promotion practices.

Professional Services

Developing implementation strategy for mid-tier market. › A new rapid implementation methodology

called accelerated SAP › Much more upfront work with clients so

that they have a clear sense of the project scale and scope.

› Efforts to rein in partners’ activities that extend in implementation time and costs.

› Similar practice was introduced in large global accounts

Professional Services: Resistance

Consultants may bridle at being so closely monitored. SAP partners may object being so closely monitored,

in particular they made huge profits extending implementation and installation projects

Internally consultants may try to resist the campaign against productivity

Consultants and Partners may build a case with clients for longer implementation times. They may even recommend a product from Baan, oracle or PeopleSoft, instead.

Questions? Comments?