Key Factors Of Systems Applications And Products (SAP) Rapid Growth

Answer 1: The major contributors that lead to SAP’s rapid growth at the time of the case are:

1. Since its launch in early 1990s, an ERP product namely R/3, which was SAP’s most famous enterprise product/application, was responsible in the growth of revenue by generating billions of dollars from companies that were large. This growth resulted in that out of the 500 global companies, 90% of them used SAP’s software.
2. From the start SAP had focused on selling its complex products to the large companies or the large enterprise(LE) segments. These LE’s paid millions to SAP just to get the rights to use their software, that too a basic version of it and then paid some more to customize that application to fulfil the needs of their company. Due to the dependency that SAP has created amongst the LE, SAP earned a lot of revenue from them.
3. SAP soon developed application called mySAP, which served as a successor to the previous ERP product called R/3, in the late 1990 and early 2000. To focus on selling IT based and building products on it, SAP launched 2 new subsidiary companies, namely, SAP Portals and SAP Markets. These were later in 2002 merged to SAP.
4. After growing so much since the launch of R/3 and having a successful product, SAP’s sales had come to a halt. In 2002, SAP had stalled the sales at 7 billion euros due to recession that happened globally and decline in the budget of IT.
5. In 2002, SAP introduces a new technology foundation called NetWeaver. Introducing NetWeaver was a step that SAP took towards the growth of the company. NetWeaver is a foundation to xApps, a new set of apps. By 2006 SAP’s partners had created 20 xApps and SAP itself had created 7.
6. In 2003, for the first time in the past few years SAP saw a decline of 5. 2% than the previous year. This led to Kagermann to think that it was time to make a plan to pick up the momentum of sales. Due to this decline, Kagermann came up with three strategies which would lead to the growth of the company. First was to develop an innovative web based platform. Second was to shift the focus from LEs to SMEs(Midsize companies). Third was to improve its UI and offer more functionalities in their products. Kagermann predicted that these strategies will make the sales grow in double digits and increase the net margin as well by about 30%.
7. SAP’s partner ecosystem played a huge role in their growth. Because of this partner ecosystem they had hoped to bring in innovative ideas and solutions. SAP was partners with companies like Microsoft, Cisco, Intel, EMC, Accenture and IBM. They were all cost effective and hence led to a growth.
8. Though there was a decline in 2003, 2004 saw a growth in sales for SAP’s existing products. Even after seeing the growth Kagermann still thought that his strategies should be implemented and that the company should be committed in deploying the web service based platform. In 2004 SAP had introduced 2 new applications, my SAP all-in one and SAP business one to target SME. It partnered with almost a dozen of channel partners and sold these products to Midsize companies.
9. SCORE and GOAL were two structural changes in the organization that led to growth of the company. In 2005, in enterprise market, SAP were the leaders by having a market share of almost 9%. In 2006 SAPs license revenue was more than 3 times of its competitors like oracle for the last 4 quarters. This means that the large companies had started buying their products again. SAP did not abandon its legacy applications since it wanted to sell both applications and platform like Microsoft. There were a few challenges that came with the explosive growth of SAP.

First challenge was that while SAP was working on the three growth strategies initiated by Kagermann, they still had to keep their focus on legacy applications. Most of SAPs revenue was coming from the legacy products and the maintenance and service contracts of those products were the key revenue generators. They had about 32,000 customers and those customers will not just wait for their new product to come in, hence it is important for them to keep working on the legacy products in parallel. Second challenge is that when the organizational structure was changing many employees found it difficult to accept those changes. This led to a lack of innovation in the employees. They also had less motivation left and were not able to understand these strategies. Making the employees understand the strategies is a challenge that SAP needed to overcome. To keep up with the growth of the company kagermann came up with new strategies and structural changes which led to a chaos in the company. Third challenge was that competitors like salesforce was gaining advantage over SAP because it was easy to use and competitors like google introduced simple web based applications that were gaining popularity. SAP’s competitors were growing and catching up to them. Fourth challenge is that after the company had become successful and had so much growth, it was very important to keep up with the growth. The challenge was that the revenue should keep increasing. SAP had to find ways to do better than the previous year financially in order to keep growing the revenue. It had to come up with better product so that the sales are increased.

Answer 2: The factors that lead to SAPs desire to change the organization and business strategy are : First, There was a recession and reduction in IT budget lead to a halt in the revenue of SAP in 2002. This is when Kagermann decided to come up with 3 strategies to increase the revenue. Second, Another factor that lead to the change was that the IT was extending and becoming a better technology. Web based services were the new platform in IT and this lead to the change as well. Third, Change in user needs also lead to the change in organization and business strategy. SAP wanted to acquire the SME market and hence a change was needed. According to me these factors were outside the control of SAP. In order to overcome these factors SAP came up with business process platform. To make this platform work SAP had to go through a lot of changes.

Answer 3: SAP introduced BPP as an advancement of IT that is known as NetWeaver as well. NetWeaver was aimed at integrating SAP and non-SAP applications. It is a flexible technology but the difficulty was that SAP owned a lot of applications like CRM,ERP, etc that were not tightly integrated. Hence if a company wanted to have functionalities of 2 different SAP applications it had to buy those applications from SAP and use NetWeaver to integrate them. This was a huge hinderance in the proposed initiative and in overall innovation. To launch BPP, engineers at SAP had to make significant R&D efforts. Most of the services that were supposed to become a part of BPP were already there in at least one of the SAP applications. So due to this every service had to be detached from the mother application and added to similar processes that existed in other applications. Engineers had to make sure of the compatibility and mySAP Business suite had to be upgraded so that it is interoperable with BPP standards. This was a huge hinderance as well. Heinrich, director of global support said that their goal was to reach about 100,000 customers by 2010. If this is done it will be impossible for them to provide support to so many products. This also hinders the proposed initiatives.

For years, SAP only dealt with the customers. But now SAP deals with ISVs as well so if any problem occurs in the product or the customer customizes the software then how will it be solved. Clear accountability should be set. If there is a problem in BPP platform SAP can solve it but if not then who will be responsible to solve the problem. This is a huge hindrance. Agassi, started to hire new employees on the higher level of the organization. Many employees thought that all the positions at the higher level till now have been filled with people who have been with SAP for a long time and deserve it. Now since new people were getting hired, employees started to think about their jobs and if they will have to leave it or not. Most of the new hires were in the Palo Alto office and the employees at Waldorf office feared American culture getting in the company. The employees at Waldorf office thought that it is the centre of all the SAP buildings. This thinking had to be removed. This is another hinderance. SAP has always had employees with high technical knowledge and who know how to develop a product. They knew what a customer wanted and worked according to customer needs. But SAP lacked on people who understood what being a platform based corporation really means. SAP lacked management people and had a lot of engineering employees. This is a huge hinderance. SAP wanted to continue upgrading their legacy products. This was a challenge to the company as it had to produce a new platform. SAP was able to only use half of their resources in research and development of the new product because they did not want to abandon legacy services. It was a huge hinderance.

Answer 4: It is neither an executive mistake nor a mistake of team of executives. BPP is a platform that integrates SAP applications and NON-SAP applications. SAP would allow ISVs to host their applications on BPP. This platform was based on web-based service technology, which was gaining popularity amongst customers and implementing a product in this technology would increase their revenue eventually according to SAP. BPP was the priority of SAP but SAP did not want abandon their legacy services. The direct sales of the legacy services were the main revenue generator for SAP. SAPs motive was to maintain their growth and revenue, hence till the time the new product is not launched they did not want to lose out on the customers they already have and the income that they got from the old products. They needed to keep upgrading these legacy product in order to sustain in the market and keep growing. By spending 50% on R&D they could focus on both legacy products and new products simultaneously.

Answer 5: Corporation + competition = coopetition. Enterprise industry was driven by coopetition because multiple vendors were a part of multiple areas in the technology stack. Coopetition was a beneficial idea for both SAP and its competitors. Oracle had a huge presence in the database market, while SAP did not have much presence in that market. Even though SAP and oracle were rivals/competitors over 60% of SAP’s customers used oracle databases in their systems. SAP’s sales people collaborated with oracle to increase the sales. In case of IBM as well, many customers of SAP used IBM’s DB2 database in their SAP applications. SAP and IBM were also competitors as IBM offered technology and tools through which customers were able to build their own customized enterprise application instead of buying SAP’s tools and technology.

The functionalities that SAP’s products offered could embed into Cisco. Similarly Accenture and IBM were system integrators, they helped customers to build applications on SAP platform. In 2004, SAP and Microsoft joint hands to create a product that would enable customers to embed SAP’s functionalities in Microsoft Office suite. This product was called Mendocino. All these collaborations led to an increase in SAP’s peer market share to 47% in the US and 62% in the world. Coopetition was a way of serving customers cost effectively and increasing the market share. SAP and all their competitors were leaders in different technologies in the technological stack and no competitor or vendor provided with a complete solution that was effective and cheap. Eg, oracle was good with databases and SAP with enterprise application, hence joining hands proved to be a good decision for all these companies. Using different technologies from different vendors was cost effective and increased revenue of all the companies and also helped in increasing their market. For example, oracle’s customer were now SAP’s customers as well and vice versa. According to me coopetition was a good decision.