SAP and The Online Procurement Market

Overview of Company Mission and Vision Mission statement-“Take what is good and make it better”. Their goal and mission is to provide Enterprise Business Solutions for sustained competitive advantage. “This statement acts as a gauge by which we measure everything we do – how we develop our products, how we communicate with the world, how we present ourselves in our marketing materials, even how we answer the phone.” Company’s vision is to empower all employees and make difficult easy. “By allowing them to effectively tap into and leverage the data that resides on their SAP and non-SAP systems. SAP believes that people like their current user experience, but want business process context to be part of it. Company wants business users to utilize this data to accomplish daily tasks in more productive ways and make complex tasks simple.”- Shai Agassi, president of the Product and Technology Group and executive board member, SAP AG

History SAP (Systems, Applications and Products in Data Processing) was started in 1972 by five former IBM engineers who wrote programs for mainframe computers to help industrial companies control their manufacturing process. In 1976 “SAP GmbH” was founded and the following year the headquarters moved to Walldorf, Germany. SAP AG became an official company’s name after 2005 annual general meeting. Three decades: 1970’s, 1980’s and 1990’s. 1970’s – real-time vision. Birth of SAP R/1 system 1980’s – rapid growth. Birth of SAP R/2, which can handle multiple languages and currencies. This leads to market expansion to Austria and later to Italy, Danmark and United States. Revenues reach $52 million.

History (cont’d) 1990’s – a new approach to software and solutions. SAP R/3 is released to market. The client-server concept, uniform appearance of graphical interfaces, consistent use of relational databases, and the ability to run on computers from different vendors meets with overwhelming approval. By 1996, the company has earned 1,089 new SAP R/3 customers. At the end of the year, SAP R/3 has been installed in more than 9,000 systems worldwide. On August 3, 1998, the letters S-A-P appear for the first time on the Big Board at the New York Stock Exchange (NYSE), the largest stock exchange in the world. Company’s new strategy mySAP.com links e-commerce solutions to existing ERP applications, using state-of-the- art Web technology.

SAP today Currently, more than 12 million users work each day with SAP solutions. There are now 121,000 installations worldwide, more than 1,500 SAP partners, over 25 industry-specific business solutions, and more than 41,200 customers in 120 countries. SAP is the world's third-largest independent software vendor. Today, with enterprise services-oriented architecture and the underlying integration and application platform, SAP NetWeaver, SAP is providing our customers with solutions for end-to-end business processes. With SAP NetWeaver, your company can integrate people, information, and processes within the company and beyond. Summary- Over the course of three decades, SAP has evolved from a small, regional enterprise into a world-class international company. Today, SAP is the global market leader in collaborative, inter-enterprise business solutions. The company now employs more than 39,300 people, whose commitment and innovative spirit pace our future success.

Management team Executive Board Henning Kagermann CEO Areas of Responsibility: Overall responsibility for SAP's strategy and business development; global communications; global intellectual property; internal audit; top talent management Léo Apotheker Deputy CEO, Member of the SAP Executive Board and President, Global Customer Solutions & Operations Areas of Responsibility: Sales; consulting; education; training; marketing; field services; small businesses and midsize companies; operations Werner Brandt Chief Financial Officer Areas of Responsibility: Finance and administration; shared services; SAP Ventures Claus E. Heinrich Member of the SAP Executive Board Areas of Responsibility: Human resources; internal information technology (IT); SAP Labs Gerhard Oswald Member of the SAP Executive Board Areas of Responsibility: Global service and support; business process outsourcing; custom development; managed services; ramp-up Peter Zencke Member of the SAP Executive Board Areas of Responsibility: Research; application platform

Stakeholders and Key Players Key Players Hasso Plattner- Chairman of the Supervisory Board. He is one of the founders of SAP AG. Plays huge role in company’s success. Media reports have named him one of Germany's most important private sponsors of scientific research. Henning Kagermann – main stakeholder and key player. He is a cofounder of SAP AG and a CEO of a company. Kagermann has overall responsibility for SAP's strategy, business development and also oversees the areas of global communications, global intellectual property, internal audit, and top talent management. Kagermann is currently a member of the supervisory boards of Deutsche Bank AG and Münchener Rückversicherungs-Gesellschaft AG (Munich Re) in Germany.

Goals and strategy One is to continue expanding its offerings beyond ERP by developing enterprise software for the fast-growing customer relationship management (CRM) and supply chain management (SCM) markets, an initiative that the company first conceived in 1996 but had been slow to act on. Second is to recast its entire product line with unified Internet focus. Third, SAP has decided to enter the market for electronic- commerce software and services, including the creation and management of online trading communities. This representing a far-reaching departure from its traditional ERP business. The major goal of SAP’s new e-commerce strategy was the market for online procurement software and services- tools that enabled companies to automate and manage their purchases of “operating resources”.

Strategies (cont’d) Fourth is to expand the company’s product line beyond ERP systems into customer relationship management, supply chain management and procurement. Company recognized the need of opportunities that the Internet presented. mySAP.com launched to provide a unifying framework for SAP’s entire range of products and services under company’s new focus on the Internet.

Industry and Market Internet and World Wide Web opened new markets Internet restructured industries and supply chains. B2B commerce transacted electronically will grow from 3% to 42% according to Jupiter projections. Boston Consulting Group study expects a growth from $1.2 trillion to $4.8 trillion between 2000 and Before an ERP system could go online, its variuos components needed repeated testing and debugging, which slowed down the entrance into online market. ERP software market exploded from worldwide sales of $2.1 billion in 1993 to $16.6 billion in a compound annual growth rate of 51.2%. Competition of ASPs (Application Software Providers) and ERP vendors Biggest competitor- giant corporation Oracle.

E-Commerce opportunities Entrepreneurs realized that Web technology could automate OR procurement. The Web browser provided an easy-to-use way for any employee to make a transaction. Web created infrastructure for digital marketplace with easy access to products from multiple suppliers. With an affordable, easy-to-use technology now available, companies could reduce procurement costs and use the savings to improve their bottom line. 5% savings from automated procurement could bump profits by 28%. Online-procurement produced savings in four ways: First, they eliminated manual, paper-based procedures. Second, by reducing maverick buying, companies could eliminate the 17%-27% premium they paid on one-third of their purchases.

E-commerce opportunities (Cont’d) Third, automation reduced the order-to-receipt cycle time and improved productivity. Fourth, with less effort spent processing forms manually, purchasing personnel could devote more time to building relationships with suppliers and negotiating better contracts. According to study by Deloitte Consulting, companies averaged 300% returns on their investments in online- procurement system, over the first two to three years of deployment. The average implementation cost was between $2 and $4 million, and firms shaved about 9% from their annual procurement costs in their first two years of use.

E-Commerce initiatives SAP’s entry to online-procurement market started with the launch of Business-to-Business Procurement (B2BP) application, as part of New Dimension initiative. SAP launched mySAP.com Marketplace, which gave it a platform to develop an e-commerce network. Customers could use B2BP to transact purchases over mySAP.com Marketplace. It incorporated functions to automate purchasing- such as, catalog search, requisitions, approval, purchase order generation. It was most aggressive bid to enter e-commerce market. R/3 software had more than 10 million users in thousands or organizations around the world- a customer base that employed approximately 100 million workers. Many of the world’s largest buyers and sellers of commercial goods and services already used R/3 software for their order processing and fulfillment.

Perspective analysis This case address three perspectives- Technological Drivers of Change, Economics of Internet-Based Commerce and Creating and Capturing Value in the Supply Chain. Technological drivers of change- SAP was driven its new strategies and goals by the need to find new sources of growth and technological development was “perfect fit”. Economics of Internet-Based Commerce- SAP realized that entering new online market will reduce procurement costs and savings could bump profits. Online-procurement also reduced the order-to-receipt cycle time and improved productivity. Creating and Capturing Value in the Supply Chain- SAP’s new online-procurement software simplifies the whole supply chain process so even regular employees could make orders and manage the transactions.

Competitive risks SAP’s biggest competitors include such world-wide companies like Oracle Corporation, PeopleSoft Corporation, J. D. Edwards Company and The Baan Company. ERP party began to wind down for three main reasons: Maturing market- ERP installations had penetrated as much as 50% of the potential customer base. Companies were siphoning money from ERP budgets to address the Y2K problem. Explosive emergence and growth of the Internet shifted corporate IT priorities toward e-business. Emerging market of ASP- these firms provide companies with various IT services on contract basis maintaining both software and hardware systems. Outsourcing ERP – it threatens the ERP developers as the new ASP market opens up.

Missed opportunities I believe that SAP instead of competing and changing strategies could have been more consistent. Company should also pay more attention at the quality of service, stick to the main strategy and share the market with others competitors, instead of racing them. This might have caused the fall of the company in 1999, when SAP had several glitches with its software. It hurt company’s image and evoked mistrust.

Success or failure? Company’s major goal was to focus on the Internet and E-commerce. Market is huge and rapidly growing. SAP changed entire company’s business plan focusing on technology-based vision. Nevertheless company remained sanguine about it’s future. Despite all the struggles and misfortunes SAP still remains the third largest company in the world in terms of revenues. Gardner Group predicting new digital marketplaces would arise in the next few years and SAP will take the rightful share of that business. Success.