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A Case Study on..

SAP and the Evolving Web Software


ERP Market
Presented by:
Asmita Rao (50)
Chinmay Khankhoje (36)
Harshad Khedekar (37)
Purva Patankar (46)
Sarang Tilak (57)
Vandan Pathak (47)
Vijay Kekan (34)
SAP’s Inception

Founded by 5 German IBM Computer Analysts in 1972

ERP (Enterprise Resource Planning)
 Co-ordination of cross-functional and cross-divisional information
 Central processing of information
 Enormous savings in Time and Expense
 Managing A-Z of business simplified

R/1 & Installation in Nestle

Benefits to Nestle
Expansion – Good or Bad?

Focusing of R/1 onto MNCs

Initial Strategy

Switching of strategy – Outsourcing

Decentralization, Link between SAP and Clients, Concentration on core


competencies, Penetration into global markets made easier



Profits distributed, Lack of firsthand knowledge of needs of customers

Engineering Mindset- Boon or Curse
Next Generation

Launch of R/2

Value-chain/business process modules like product development, inventory, and
order tracking

Use of Oracle DBMS in R/2 enabled Oracle to develop its own ERP software and
emerge as SAP’s competitor

Linkage to databases and mainframes

Customizations for each industry

Going public-1988

Broad solutions-A cut above the rest

SAP concentrated on providing solutions to many companies’ business process
problems
Introduction of R/3 solution

SAP’s continuous investment led to introduction of third generation ERP solution, R/3 in 1992.

It had following 7 modules:

1. Production planning

2. Materials management

3. Financial accounting

4. Asset management

5. Human resources management

6. Project systems

7. Sales and distribution


SWOT ANALYSIS OF R/3
Strengths Opportunities
•Offered seamless, real-time integration •Competitors would take time to catch up
•Embedded many industry best practice with the updates.
solutions . • internet based tools
•Could operate in multiple languages and • small and medium enterprises
convert exchange rates.
•Could be customized to meet broader
needs of industry.

Weaknesses Threats
•Cost of customization was too high for •Oracle emerged as a strong competitor
consulting companies •Increasing demand and popularity led to
•Difficult and expensive to implement several SAP divisions which led to lack of
•Was too standardized coordination and monitoring
•During reconfiguration, a lot of time was
consumed
•Many a time, expectations were not
matched
R/3’s Effects

R/3’s popularity led to decentralization of marketing, sales and
installation of its software.

By 1995, it had 18 national subsidiaries and today it has over 50.

But decentralization led to growth in consultants, who tried to fulfill their
vested interests.

This led to a backfire of company’s mission which was to supply software
that linked functions and divisions.
Contd…
Price was based on –


number of users within a company
number of different R/3 modules that were installed
degree to which users utilized R/3 module

SAP’s expensive prices led to decline in its reputation and sales.


SAP was even sued by a company ‘Foxmeyer’ which claimed its


bankruptcy due to supply chain problems.


T he Changing Envir onment

Facing Stiff Technical Competition

- PeopleSoft’s focus on the HRM module

- Oracle offering an Internet-based ERP

platform

Victims of Weaknesses

- Complicated process of customization

- Expensive Module options



SAP’s managers to reevaluate Business

Model & Ways


Implementation problems

Work Culture
- Hard work, Teamwork, openness & speed
- No meetings, empty offices,
- Product oriented than Service oriented

Capitalizing focus on HRM
- Developed job profiles, Career structure,
Rewards to retain them
- SAP sued Siebel system for enticing their employees

Standardizing the working of Divisions
- for easier transfer of people & knowledge
- Facilitating Co-operation between Engineer &
Consultant
- Reduce overheads cost to recruit people
Implementation Problem (contd..)


Adopting Standardized & Hierarchical approach

- To earn profit from training & installation sector

- Global training program charging high entry fees

- Focus of Subsidiaries on particular sector



Problems continued

- Still highly decentralized & remained Product focused company

- Subsidiaries continued to form strategic alliances


New strategic problems

ERP system focus on company's internal business processes and not on


cross company or industry level transaction



Emergence of e-commerce

Internet offered supply chain management (SCM) and customer relationship


management (CRM) software



SAP , Microsoft , Oracle unaware of implications of web-based computing
New strategic problems (Contd..)
Introduction of netscapes web browser led to collapse in microsoft stock

price. SAP’s stock price also began to reflect because of web


development

Emergence of new web-based software technology

Industry environment started changing

Rivalry among major software makers in the new web based


software market became intense


New Strategy

1995 SAP teamed with Microsoft , Netscape and sun Microsystems and
introduced SAP R3 3.1 internet compatible system

SAP raised new funds on the stock market to keep web based R/3
systems up to date with dramatic innovations in web software
development

And broaden its web based application - B2B , B2C networks, web site
development and hosting, security and system management , streaming
videos and teleconferencing
Competitors’ Reaction
SAP had no developed competency in web software development its

competitors started to catch up

Oracle took advantage of Oracle Database system and emerged as its


major competitor.

Oracle was cheaper and easier to implement quickly

Competitors started providing specific aspects of ERP system but not full

range services as offered by SAP



Low cost modules were easily available
Changing customer needs
SAP changed its platform from a vendor of ERP components to provider

of ebusiness solutions

SAP recognized customers demand for networked environments with


global connectivity to enable realtime decision-making

Customers wanted to leverage ebusiness with the aim to increase


productivity, improve customer satisfaction and lowering overhead costs

Customers also wanted total solutions package that would take care of

relationships management and supply chains


Yesterdays ERP doesn’t meet ALL of these
needs

Inability to effectively address


industry specific needs
MySAP

MySAP offered a total solutions ERP package including SCM and CRM module

MySAP would help to leverage and build upon customers’ core competencies to

enhance their competitive advantage



Supported all other softwares and platforms

SAP worked across its range of products to make its system cheaper and easier to use

MySAP was completely compatible with R/3 system to enable customers to expand

their use of SAP products

SAP offered in-house training and development programs for consultants and

programmers
Key differences

Client/Server Architecture Enterprise – services Architecture


Transactional User Business User
Data-centric Information-centric
Functional modules Adaptable industry processes
Process efficiency Analysis , Decision and Actions
MySAP – The Strategy
To improve its cost-effectiveness, MySAP moved to a Parallel Outsourcing

Policy, wherein it ensured involvement of SAP consultant in installation and


maintenance processes to monitor external consultant’s performance

Adopted a Stock Option program in 2000 to retain valuable employees

Embraced the concept of Open Architecture, such that its MySAP Applications

were compatible with other software manufacturers such as Microsoft NT, Sun’s
Java and UNIX

Realized the need for strategic alliances and acquisitions to mitigate increasing

competition and overhead costs and enhance its market presence

Ex. Allied with Commerce One to compete in B2B segment, joined with IBM to

improve Product Life-cycle Management (PLM)


MySAP – Going Strength to Strength

By 2002, SAP achieved a position of market dominance through its partnerships and alliances

Even Microsoft recognized the enormous potential threat from SAP and introduced its XP OS which was

incompatible with SAP’s products

However, MS later adopted to open architecture policy announced that its next version of XP would support

Java based programming



Recession that started in 2000 lowered demand for software products which hurt smaller companies badly

However, SAP emerged strongly as a result of exit of other smaller competitors from the market

By 2002, established itself as No.1 vendor of software with a worldwide market share of 30%
Implementing mySAP

Split SAP Product Line into distinct but related mySAP product groups

MySAP Product Group: Collection of cross-functional product development


teams focused on target markets



Purpose of product group:
• To decentralize control
• Make it more responsive to needs of customers
• Adopting to changing technical developments
• Give SAP centralized control of development efforts
Contd..
SAP enlisted some of its key customers as “development partners” & as

members of the teams

Each group will be treated as an independent profit center & head of each group

reporting directly to SAP’s Chairman

A significant part of engineering development effort would take place inside


each mySAP group – for better customized solutions

Competitors are allowed to work with SAP teams to make their products

compatible with SAP’s products


Contd..
SAP grouped its national subsidiaries into 3 main world regions: Europe,

America & Asia/Pacific


• This grouping helped in easier knowledge transfer between countries &
serve specific demands of the national markets
• The global structure made it easier to manage relationships with consulting
companies & coordinate regional marketing & training efforts

At present, SAP operates with a loose form of matrix structure

This matrix allows SAP to provide products to the customers in a fast,


coordinated way.

Decentralization places authority in the hands of its employees, which enables


the matrix system to work


The Future
Due to recession & continuing market uncertainty, many customers are

reluctant to move to mySAP due to its high costs

Hence SAP introduced a product called R/3 Enterprise, targeted at those


who were not ready to make the leap to mySAP

R/3 Enterprise: Collection of web software that can be easily added to R/3

platform. To provide a company with the ability to network with other


companies & perform e-commerce operations

To become jump from 3rd place to 2nd in being the largest global software

company
Thank You..