SAP and The Online Procurement Market

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SAP and The Online Procurement Market
2
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.
• Companys 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

3
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 companys name after
  2005 annual general meeting.
• Three decades 1970s, 1980s and 1990s.
• 1970s real-time vision. Birth of SAP R/1
  system
• 1980s 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.

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History (contd)

• 1990s 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.
• Companys new strategy mySAP.com links e-commerce
  solutions to existing ERP applications, using
  state-of-the-art Web technology.

5
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.

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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

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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 companys 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.

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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 SAPs 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.

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Strategies (contd)

• Fourth is to expand the companys 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 SAPs entire range of products and
  services under companys new focus on the
  Internet.

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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 2004.
• 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 1998-
  a compound annual growth rate of 51.2.
• Competition of ASPs (Application Software
  Providers) and ERP vendors
• Biggest competitor- giant corporation Oracle.

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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.

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E-commerce opportunities (Contd)

• 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.

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E-Commerce initiatives

• SAPs 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 worlds largest buyers and sellers of
  commercial goods and services already used R/3
  software for their order processing and
  fulfillment.

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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-
  SAPs new online-procurement software simplifies
  the whole supply chain process so even regular
  employees could make orders and manage the
  transactions.

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Competitive risks

• SAPs 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.

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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 companys image and evoked mistrust.

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Success or failure?

• Companys major goal was to focus on the Internet
  and E-commerce.
• Market is huge and rapidly growing.
• SAP changed entire companys business plan
  focusing on technology-based vision. Nevertheless
  company remained sanguine about its future.
  Despite all the struggles and misfortunes SAP
  still remains the third largest company in the
  world in terms of revenues.
• Gardner Group predicting 7500-10000 new digital
  marketplaces would arise in the next few years
  and SAP will take the rightful share of that
  business.
• Success.