SAP AG's R/3 enterprise resource planning application controls
the informational backbone of many of the world's largest corporate
intranets. Now the German company is telling the world it wants to
extend its domination to the front office, with applications that
will touch thousands of end users.
The company says it will diversify in
the next 12 months into a wide range of specific applications - such
as Web-based procurement, logistics and call centers - from its
stronghold of integrating data among disparate applications and
departments. The announcement, made in mid-September, makes sense
for a company that just listed on the New York Stock Exchange and
wants to keep growing at 35 percent annually.
But developing for thousands of end users will be a turnaround
for a company that's grown to $3.3 billion on the back of a complex,
transaction-oriented application run by relatively few power users.
"This is a transition for us, a new orientation," says Peter
Zencke, an SAP executive board member and leader of the company's
procurement and logistics efforts. "But we've determined that the
move to the Web, and applications that reach thousands of users, is
a business trend, and we want to lead it.
"People may say, 'SAP, they are complex client-server.' But if
there's a deficit in our understanding, we'll adapt. We'll do it
faster than people think. Six years ago, people could have looked at
us and said, 'Oh, SAP, those are just mainframe guys.
Forget them.' But R/3 has been tremendously successful."
There are 12,000 R/3 customers with 70,000 installations and
In fact, the tremendous success of the R/3 application, which
integrates supply chains to inventories, to the sales force and to
human resources, has caused the company "to lose a little focus on
the customer," Zencke says. "We've had our hands full just
delivering to meet demand."
To fill those orders, SAP has had hundreds of sales in which it
has played no active role, turning everything over to integrators
and consultants. That's meant the company captured no feedback from
those users to help it adapt its product, which has hurt the
Bristol-Myers Squib Co., which liked the SAP application's
strength in handling routine transactions, has installed one of the
biggest R/3 implementations in the world. But when it came time to
implement applications such as procurement, which will touch 25,000
desktops, SAP's approach didn't fit, says Joseph Postiglione,
Bristol-Myers' procurement director.
"SAP is fine for mundane transactions, but for procurement to get
the return on investment possible, it has to empower the employee.
That's not their philosophy," Postiglione says. Bristol-Myers chose
Ariba Technologies Inc.'s procurement application.
Zencke says the company will do a better job communicating and
getting customer feedback.
SAP's message, however, is getting out to other software
While SAP's procurement application, a component of its SAP
Advanced Planner and Optimizer, won't see the light of day for
nearly a year, and its logistics module isn't due until the first of
the year, its new-direction announcement sent a massive ripple
through the hundreds of third-party software vendors that attended
the company's recent annual meeting in Los Angeles.
Among those most affected are companies such as Manugistics Inc.,
one of two companies, along with i2 Technologies Inc., that offers
Web-based corporate logistics applications that track and manage how
a product reaches a store. The two companies' total sales are less
than $500 million.
"Over the short term, SAP's announcement is an opportunity; it's
going to validate our market and let all the integrators, who rely
on SAP for most of their revenue, know this is the way to go. This
marketplace is going to explode," says Neil Hooper, Manugistics'
senior manager of strategic business. "Long-term, yes, I'm scared.
There's not room for three in this market; [analysts] say it's only
$3 [billion] to $5 billion potentially. There's going to be one
300-pound gorilla. I think we have the experience and [the] head
start for it to be us."
Long-term, says Gartner Group Inc. analyst Roy Satterthwaite,
"it's the ERP [enterprise resource planning] vendors who will win,
either through development or acquisition."
SAP acquired recently, for an undisclosed sum, computer-telephony
integration company AMC Development Inc. to be the focal point of
its Web-based call center effort.
"When they're competing on Net time, they may not have time to
build the skills to fill out their portfolio, so we'll see
acquisitions. But SAP is destined to dominate."
SAP Ag can be reached at
Bristol-Myers can be reached at
i2 Technologies Inc. can be
reached at www.i2.com