For the past five years, the Fortune 500 has been rooting around under the hood of its computer systems, yanking out and replacing all the old parts that won't last into the next millennium. Now, as these companies lift their collective heads from the engine well, blink and squint into the dawning light of the next century, they're seeing nothing but...the Internet. Just when they were beginning to get the engine tuned to perfection, now they have to winch it out of there, haul it onto the Internet, and hook it up to their customers and suppliers. And the billion-dollar question is, Where are they going to get the parts to do all that?
Not from the big ERP vendors. Not yet anyway. This realisation is making customers very unhappy. And the biggest ERP vendor, SAP of Germany, is taking the biggest lumps from clients, financial analysts and the technical press for not supplying those parts.
How SAP Swept the Field
Acronym parallelism aside, SAP is ERP. Beginning in 1972 with software made for mainframe computers, SAP was among the first to reach across the different functional areas of a typical Fortune 500 company-finance or logistics or the warehouse, each of which usually had its own home-built or packaged software-and attempt to tie it all together.
This, it turned out, was a mammoth undertaking, requiring years of R&D, resulting in a huge database application with thousands of different options for automating the ways companies did things like balance the books or track employee comings and goings. Years of honing the software with its many early customers in Europe gave SAP a tremendous advantage when, in the early '90s, it began targeting the United States with its new client/server software, dubbed R/3.
The appearance of R/3 coincided nicely with the approach of the millennium and the corporate urge to replace ageing computer systems. R/3 was more comprehensive and more integrated than anything else on the ERP market, and sales soared. SAP gained an instant lead on its competitors and never relinquished it. SAP currently owns 30 per cent of the enterprise resource planning market (its closest rival, Oracle, has 13 per cent), according to AMR Research, a Boston-based consultancy.
But now there's a problem. After all that work inventing, perfecting and selling ERP to the world, the German company is having a hard time shifting gears from making the applications that streamline business practices inside a company to those that face outward to the rest of the world. Some critics argue that the problem is even simpler and starker: SAP just doesn't get the Internet.
SAP's ERP Versus CRM, etc.
The hottest areas for outward-looking (that is, Internet) post-ERP work these days are electronic commerce, planning and managing your supply chain, and tracking and serving customers. Suddenly, you have to be concerned about the way the software looks (R/3's user screens are notoriously cluttered, drab and complicated), the way it requests information (R/3 requires many hours of training to master) and the technology under the hood (R/3's client/server technology doesn't accelerate to Web speed very well).
So SAP has been working to develop an entirely new lineup of applications that are built from newer, more Internet-friendly technologies than R/3. Collectively called the company's New Dimensions initiatives, these products for supply chain management (SCM), business-to-business electronic commerce, business intelligence and customer relationship management (CRM) are supposed to have friendlier, spiffier user screens, work well with the Web, and be easier to use and maintain than R/3.
But most of these promised products aren't ready (though SAP was promising they would be soon), and those that are, don't have as much functionality as does software from a whole bunch of smaller, more nimble competitors such as i2 Technologies, which leads the SCM market, or Siebel Systems , which dominates the CRM market.
A few years ago, these companies would have seemed mere flies on the SAP elephant. The company always ignored its niche competitors, selling the breadth of coverage of R/3 and its tightly integrated structure. But now that most companies have ERP in some form, SAP is being forced to go head-to-head with the niche vendors on the battlefield of pure functionality-something the German giant isn't used to doing. Here, the niche vendors have an advantage because some, like i2 for example, have been perfecting their software for years while SAP was bashing its way through corporate headquarters. Now, it's SAP that's playing catch-up.
Alone Again, Naturally
Unlike US software outfits, SAP has never been comfortable buying or borrowing other companies' software to plug gaps in its lineup. Its developers hunker down in SAP's suburban Munich headquarters and do it all themselves. Earlier this year, under increasing criticism from analysts and customers about the slow pace of its Internet product development, SAP seemed to pull even more tightly into its German shell. Top executives in SAP's US arm left the company for smaller, competing vendors and SAP Co-CEOs Hasso Plattner and Henning Kagermann took personal control of the company's Internet strategy.
Kevin McKay, who became president of the US arm this past March, vehemently disagrees with the perception that control of the US market has shifted back to Germany. "The marketplace that drove the restructuring of the company was the Americas," he says. "The Internet starts here and then moves through Europe and Asia."
"Some people misinterpret the involvement of Hasso [Plattner] and Hennie [Kagermann]," he adds. "I've asked them to become aggressively involved in helping us reposition the company. You need the support and involvement of the directors of the company."
Plattner displayed a rarely seen sense of humility at SAP's annual European trade show in Nice, France, this past May, where he admitted that business-to-business electronic commerce over the Internet had arrived. In a moment that was eerily reminiscent of Bill Gates' mid-'90s pledge to turn lumbering Microsoft into a fleet Internet player, Plattner claimed to have turned the company's strategy on a dime-or rather, a browser.
"We are concentrating on what's going on between companies now," he said. And what's going on between companies is collaboration online, within private Web sites that act as gathering places for companies that want to do business with each other. SAP wants to host these gatherings and provide whatever specialised software members need to do business. Like Microsoft before it, SAP is a little late to the Internet game and faces many more ambitious Web-based startups but, again like Microsoft, SAP is counting on its large customer base (20,000 installations and 10 million users around the world, according to the company) to come to its nascent Internet watering holes. It's a strategy the company calls MySAP.com.
SAP has been trying to build these communities by modifying its R/3 software for a wide range of specific industries-everything from oil to footwear to government services. But the effort has made an already complex software development process even harder. Essentially, it means rewriting R/3 industry by industry. Most of the industries that are getting or have gotten these souped-up versions of R/3 have experienced delays, software problems and a shortage of SAP consultants sufficiently well-versed in the different industries to be able to modify the software.
Though it has been slow going, McKay sees these industry customisation efforts as the linchpin of SAP's Internet strategy. "Someone else can do the Web site, the standardisation of the data, and attracting and marketing to the community," he says. "But for the community to be effective, it has to be able to rely on the underlying infrastructure-hopefully SAP."
Meanwhile, the only world left for SAP to conquer is that of the smaller, midmarket (less than $1 billion) company. But SAP has a bad rep with midmarket companies. Many begged SAP to call on them during the ERP boom days, but their calls went unanswered as SAP focused almost exclusively on the deeper-pocketed Fortune 500. Smaller ERP vendors like JD Edwards have made a killing by rushing in and being chivalrous after that erstwhile cad, SAP, turned a deaf ear to midmarket entreaties. McKay acknowledges this and says SAP now returns the calls.
"We don't want to lose a deal based on company size anymore," he says. "The days of perhaps being arrogant or having more demand than we can supply are clearly over. We have a new humility."
Even SAP's big clients are still waiting to see it, however.
"SAP can be described in a single word: 'Arrogant,'" says a Fortune 500 CIO and SAP customer who asked not to be identified. "They treat you like you're lucky to be getting the software."
Down, but Not Out
Despite all the upheaval, however, nobody is writing off SAP. Its Fortune 500 customer base is not displeased with what it got from R/3, and many are simply going to wait until SAP fills in the gaps in outward-facing technologies. The only remaining question is, How long can SAP's loyal customers afford to wait for their Internet capabilities and functionalities?
As companies like i2 make it easier to hook their software onto electronic commerce Web sites, and as middleware vendors make it easier for IS departments to hook together applications from different vendors, everyone is beginning to wonder how much longer SAP can convince its customers that it is leading rather than following. SAP customers are watching leading-edge electronic commerce companies like Dell Computer use the Web to topple established leaders in its industry and wonder if they will be next.
Says Brett Thill, an enterprise applications analyst with Credit Suisse First Boston, "CEOs are looking at this electronic commerce stuff and saying, 'I don't want to get Delled.'" After all, no one wants to be the wallflower at the WWW dance, standing in a corner, alone in the dark.
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