SAP CEO Henning Kagermann is encouraging customers to spend more on IT. "Nobody ever saved their way to success," Kagermann said. He told the audience of 7,000 customers, partners and employees at the company's annual Sapphire conference in Orlando, Fla., that they shouldn't wait for a recovery--they should adapt to the situation. For Kagermann, adapting to the situation means consolidating around SAP's enterprise suite and integration tools as a way to get "efficiency and integration out of the box."
Of course, Kagermann is doing his sales pitch, but he's also acknowledging the ongoing consolidation within the enterprise software industry. In reference to the Oracle-PeopleSoft-J.D. Edwards drama, Kaggerman said, "Some of competition consolidates from the bottom. We have no time to do those games." He reiterated that SAP is the "safe haven," and will not buy market share or change its strategy. "We watch this carefully, and hope we can give an indication to market that there are alternatives."
SAP's management considers Oracle's hostile bid for PeopleSoft a kind of circus sideshow, but Kagermann is providing an overt indication of alternatives in soliciting the disillusioned base of PeopleSoft customers with offers for free technology assessments.
The other consolidation front, which was the focus of Kagermann's presentation at the Sapphire event, is cleaning up the mess created in the past by "getting rid of cycles of consolidation." He is referring to the time and money spent on deploying applications from various vendors and then trying to deal with the complexity and inefficiency, only to repeat the same behavior. His solution: standardize on SAP's enterprise services architecture, NetWeaver and xApps. He claimed that standardizing on SAP's end-to-end stack could lower total cost of ownership by 20 to 30 percent.
Similar to Unisys's four-layer business blueprinting concept, SAP architecture starts with defining business processes and creating industry-specific solution maps. The second layer is business applications that execute on the business processes. The integration and application infrastructure platform is the third layer, followed by the computing infrastructure, which can provide on-demand IT services. The difference between Unisys' business blueprinting and SAP's enterprise service architecture is that the latter's top three layers involve SAP's extensible software stack.
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| SAP CEO Henning Kagermann: "Getting rid of cycles of consolidation." | ||||
Similar to the market for operating systems or databases, consolidation among the enterprise software vendors will result in a more commoditized market. As a customer, consolidation means less choice in the base platforms, and perhaps less complexity and cost if the vendors are true to their word about providing lower TCO and becoming more trustworthy, to use Kagermann's term.
That's not to say that IT doesn't matter or that innovation will cease. The new model for enterprise applications is pre-configured solution suites and less customization in the core modules, but there is plenty of room for innovation on top of the applications through Web services and technologies, like SAP's xApps, and from smaller companies that solve specific customer problems. Many of those innovations will migrate into the standard offerings, and the cycle of innovation leading to standardization will be a constant.
Kagermann highlighted Novartis Group, the Swiss pharmaceutical giant and a long time customer of SAP, as an example of a company that is standardizing on SAP's software suite. Even for a committed SAP customer, however, the risk of putting all eggs in one basket is a cause for concern, especially in an emerging market. But, the costs savings gleaned from reducing the number of vendors and legacy systems, as well as the level of integration and maturity of the applications, mitigates the risk. It boils down to who do you want to entrust your business to. Given the confusion among the other top players, SAP looks like a safe choice, if there is such a thing.
Fender Musical Instruments CIO Patti Walker recently made a decision to go with SAP as a single-source vendor, despite the significant change management issues. "Anytime you go from a custom environment to packaged environment you have to be prepared to build the business around the way the software works," Walker said. "We intend to go without modification because we are confident in the depth of SAP's software and [industry] expertise."
Josh Greenbaum of Enterprise Applications Consulting believes that SAP's strategy makes sense primarily for the company's existing customer base. "It's primarily an upsell market. I don't expect customers to rip and replace Oracle or PeopleSoft to get a 20 percent TCO reduction from SAP," Greenbaum said. Nonetheless, SAP's standing among the non-SAP base will get more of a boost if the Oracle-PeopleSoft-J.D. Edwards situation continues unresolved.
Looking into the future, it's clear that SAP will have an even larger fiefdom. If PeopleSoft succeeds in acquiring J.D. Edwards, the combined entity could own a decent market slice. Oracle could end up the number two player, or an also-ran in the applications space, if it fails to snag PeopleSoft. If IBM decides to get into the enterprise applications space through an acquisition like PeopleSoft, SAP would have to rethink its strategy, given that IBM is SAP's biggest reseller.
If history is an indicator, however, in 10 to 20 years--perhaps sooner--an invasion of newcomers could unseat the established empires. Those empires would fall for the same reasons any empire crumbles over time: loss of focus, passion, trustworthiness, stamina, and vision.
The challenge for Kagermann and SAP is to keep the SAP empire from cracking. His vision is to change the cost structure of IT and pursue innovation by investing in growth. According to Kagermann, companies today invest about 10 percent in innovation, 30 percent in consolidation, and 60 percent in operations. He believes that three years from now innovation should account for 30 percent, consolidation 20 percent and operations 50 percent of spending-unless the economy forces more savings directly to the bottom line.
Based on his presentations at Sapphire, Kagermann will not be easily swayed from his mission. "The key for selling and long-term success is trust. It's a five to fifteen year marriage, so you have to be reliable," Kagermann said. "Reliable" is not necessarily a word often heard in the software industry, but Kagermann will likely figure out how to make it rhyme with innovation.
What's your take on SAP? How does it rate compared to Oracle or PeopleSoft? Use TalkBack to let your fellow ZDNet readers know what you think. Or write to me at dan.farber@cnet.com. If you're looking for my commentaries on other IT topics, check the archives.
