SAP Case Study Avimanyu 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
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 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 Consulting Firms: Implementations Certification Training Updates Technology and business plans Long term relationships Complimentary Software: Database, OS etc SAP Product R/3 Certification Training Updates Technology and business plans Long term relationships Certification Training Updates Technology and business plans Long term relationships Hardware Firms
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.