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Research Duquesne Advisory delivers in-depth analyses of Information and Communications Technologies, their implementations and their markets. Research is based on critical observation of the market by the analysts and their on-going contacts with the vendor community, together with hands-on, practical experience in consulting engagements.

SAP’s painful management shake-up


In ten questions, Duquesne Group analyses SAP’s management shake-up … with no punches pulled.


Question : Leo Apotheker has left SAP : what can we say about it ?

E.Besluau (Duquesne Group) : It looks like a sanction ! Even though the « French friendly » and French speaking Apotheker might be seen (at least in France) as paying for others ….the fact is that SAP has made a lot of errors these last few years: technical choices overly influenced by technical fashions, unimpressive on-line services delivered late, and – last but not least – the badly managed increase in maintenance costs which really upset the customers.

Q: The new management structure is “dual”. Is this a sign that it is only provisional?

E.B: That is not at all clear. One might even say that it was the period of “solo” management by Leo Apotheker which was provisional or transitional. Going forward, the Supervisory Board (whose president Hasso Plattner, the historic SAP co-founder, still keeps an eye on things) has introduced a German-style “dual” management structure. In addition, they are SAP veterans and not outside newcomers, which should reassure the employees, another preoccupation of Hasso Plattner.

Q: Were the employees worried?

EB: According to Plattner, yes. Internal surveys showed a certain amount of dissatisfaction. And Hasso Plattner believes that only happy employees can make a profitable company. He also adds that the same goes for customers.

Q: How important was the dissatisfaction of customers after the increase in maintenance fees?

EB: It has to be said that there were good reasons to be dissatisfied! The way it was done really surprised the customers: first SAP announces that it’s more expensive, then – of course - that it will certainly be better. The discussions with user groups became absurd, splitting hairs to figure out how SAP could possibly prove that the maintenance would be better … but no matter, customers would still have to pay more.

In addition, some of the large accounts who had negotiated contracts with complete « bottom line » prices had difficulty in distinguishing the license price from the price of maintenance, the result being somewhat arbitrary customer by customer increases.

Finally, to top it all off, SAP stopped the least expensive maintenance formula. Confronted with the resulting wave of dissatisfaction, SAP backed off!

Bottom line result: customer dissatisfaction and questions about how serious SAP is when it talks about service! And none of the problems are settled.

Q: Can we say that SAP is focusing now on licenses?

EB: A software company always has to keep a good focus on license revenue (down by 27% in 2009, which is a bad number even with the crisis). But it also has to ensure the profitability of maintenance in and of itself. And that’s the rub. At Duquesne, we don’t believe that SAP sought to raise maintenance fees simply to make more profits but rather because maintenance really is costing them more and more. The various evolutions (MySAP, Netweaver, the SOAisation of SAP, Web offerings, etc.) have created a lot of different and divergent software, which is expensive to maintain. The era of Shai Agassi (the former « visionary » technical director) left its marks: the evolutions were much more technical than functional. So, why should customers have to pay to correct bugs in all this new software that brought them so little business benefit? Broadly speaking, that was the customer reaction. SAP will sell more licenses if it offers better solutions, which is an entirely healthy way of looking at things.

Q: Doesn’t Oracle have the same problem?

EB: Oracle is in almost the inverse situation: it has inherited an installed base of heterogeneous code and is trying to make savings everywhere (including correction of bugs). SAP gives the impression that it has more or less blown its opportunity: starting with a base of code developed in-house, it did a number of evolutions …often to follow fashionable market trends. In French we have an elegant proverb which applies fairly well: "qui trop embrasse, mal étreint", which means roughly that whoever tries to «embrace» everything, ends up really possessing a lot less. More simply, others might say that SAP shot itself in the foot.

Q: Going forward, what do you see as challenges for SAP?

EB: There is of course still an ERP market, even if it is starting to become well crowded. New functions that facilitate good business management will always find buyers. And of course real technical improvements can be reasonably attractive. (Hasso Plattner for example talks about in-memory processing). Nonetheless, we are moving into a new period in which the SAP eco-system might begin to have a somewhat negative role for the company itself.

Q: Are you thinking about the integrators?

EB : In part, yes. They sell specific enhancements around the SAP product and pull the customer away from the natural evolutions of the SAP software. Changing versions becomes more difficult and the integrator – who is at least partly responsible for the difficulty – has the key role. Experienced customers are of course well aware of this problem but it remains. Managing N versions is a lot of work for SAP …so it has to make trade-offs. The integrator is not always or entirely an SAP ally.

Q: What about Oracle-Sun? A danger?

EB: By integrating application + DBMS + middleware + hardware, Oracle can offer packaged total migrations that are - possibly - more rapid, safer and less expensive for the customer. It is a real danger for SAP that does not have the equivalent. The SAP customer has to go see different suppliers or turn it over (again!) to an integrator. Unless of course SAP does some partnership deals: with IBM (for the pSeries and DB2 for example) or with Microsoft (for SQL Server and Windows Server on HP hardware, another example) … with the risk of seriously annoying its integrators. Nonetheless, the fact that Oracle (which has the DB the most frequently used for SAP) is on the opposite side is a real handicap. A key player in the SAP eco-system is taking its distance.

Q: So to sum it up ?

EB: In brief, SAP has to focus on meeting customer demand: really interesting business functions (not just faddish trends); easier migration towards platforms with better price/performance as well as operating cost/performance; and good solid support. In an eco-system that is changing and becoming at least partially hostile, it’s a real challenge.

Tuesday, February 16th 2010
Duquesne Advisory
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Duquesne Advisory

Duquesne Advisory Ltd is a European firm, headquartered in the UK, dedicated to researching, understanding and advising clients worldwide on opportunities and trends in Information and Communications technology.

Research

Duquesne Advisory delivers in-depth analyses of Information and Communications Technologies, their implementations and their markets. Research is based on critical observation of the market by the analysts and their on-going contacts with the vendor community, together with hands-on, practical experience in consulting engagements.

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The analysts of Duquesne Advisory leverage the Firm’s ongoing market and technology research to undertake high added value consulting engagements for both ICT users and ICT providers. Focused on client service, their approach is rigorous and methodical, and at the same time pragmatic and operational.