Monday, September 29, 2008

SAP in the French HRM market

SAP has held a leading position in the business application software field for many years. Largely relying on the SAP platform for accounting/finance and MRP, it was not clear that SAP could succeed on a very local scale and relatively independently from the rest of the information system: i.e., Human Resources.

With accounting and finance, HR was among the first business processes to be automated in organizations thanks to application software. Within the last three years, there has been a burst in the French HR software and services market, which saw a growth close to 9% for a market volume above €1,500 millions in 2007.

The economic situation and internal needs of modern companies explain this growth. Complex regulation requires a constantly updated HRIS. Furthermore, facing the Grandpa-boom, demographic issues and skill shortages, HR organizations are facing major stakes: anticipate, recruit and retain employees. The globalization of companies, M&A and various organization transformations require largely automated and flexible HR processes, easily accessible and sharable information, and standardized core practices, all the while taking into account local needs. Furthermore, a good HRIS directly contributes to operational performance, automating data processing, and giving decision makers valuable information.

SAP is quite successful on the overall HR market (12% growth in 2007) including payroll solutions. Its strategy is to position its platform as a technological reference for internal payroll processes as well as for application management or BPO deals. SAP has many advantages in this competition. It is the only international ERP in the top Software Vendors as HR Access Solutions is an HR specialist and Cegid and Sage are very local players targeting SMBs. Oracle is more known in the HR field (Talent or Careers Management) and is not so successful in the payroll field.

For many large international customers, SAP HR is a strategic choice, often made to foster coherency when they choose SAP as the core ERP. At this moment the “integrated” argument is relevant.As HRIS including payroll has to be very reliable, end-users may question the choice of an ERP and choose a best-of-breed. SAP software is very tough regarding Payroll and Time Management. SAP is benefiting from the gradual integration of Time Management modules and Payroll, which allow it to compete with Time Management best-of-breed.
Furthermore, the acquisition of BO may offer new opportunities to SAP as BI tools for HR organization are a fast-growing market.

Despite these strengths and opportunities, SAP still has difficulties to reach a leadership position on the French market. The company ranked #3 in 2007 among top HR software providers, behind Oracle and HR Access Solutions, two serious competitors.

On the HCM segment (Talent and Careers Management excluding Payroll and Time Management solutions), Oracle is the leader with more than €25 millions in software product revenue, far ahead of SAP (€13 millions). The Peoplesoft solution remains the spearhead of Oracle’s offering on the HR market, especially on the HCM segment. Regarding Payroll segment, SAP ranked #3 in 2007 behind Sage, Cegid (very dynamic on SMBs) and HR Access Solutions, French historical leader in HRIS.

Will SAP succeed in outpacing these competitors to become a leader of this market ? This will be a tough challenge as they are also taking benefit of opportunities on the French market and have very aggressive development strategies, locally as well as internationally.

For more in-depth market research go to:

Wednesday, September 24, 2008

NetWeaver in Russia: a Larger Opportunity for SAP than in Established Markets?

Russia has certainly become one of the key markets for SAP. Despite remaining a high risk/reward market in the eyes of most multinationals, it continues to be a rising star of the EMEA region for SAP and the sustained annual growth propels it among the largest markets for SAP in Europe (excluding Germany) in two to three years. SAP is strongly selling application software in Russia and enjoying high customer adoption. Based on this adherence, could SAP also capitalize on other software opportunities such as NetWeaver?

While in the Russian application software market SAP is an established leader, PAC tries to assess SAP’s opportunities in the integration and infrastructure software space. Russia remains a virgin terrain for infrastructure and integration platforms, with no major infrastructure software vendor established yet. Opportunities for integration and infrastructure platforms in Russia are tremendous, and there is no single company with a clear lead in that space.

Traditional software infrastructure vendors waving the SOA flag like IBM, HP or Oracle do grow very fast too in Russia, but none of them has yet established a solid foothold in the software infrastructure arena. Customers in Russia tend to solidify the infrastructure software layer in parallel with the progress they see on the application development level. While the large commercial accounts start to feel they need to integrate the growing complexities in their environments, the public sector needs platforms to integrate legacies and provide the development foundation for new systems.

In this competitive context, SAP may try to come in and propose NetWeaver to its installed base. There have been several references of NetWeaver installations in Russia (e.g. Silovye Mashiny was the third customer adopting NetWeaver at global level, choosing NetWeaver components back in 2004), but the potential remains out there, both for NetWeaver software and services. The company has only scratched the surface compared to what could be achieved.

SAP and the ecosystem in Russia still seem very focused on applications. This is partly because customers remain highly preoccupied to automate business processes. On the other side, the lack of skills and maybe understanding of NetWeaver in the ecosystem results in a lower ability to propose SAP vs. traditional integration and middleware vendors.

Is SAP missing a high opportunity in pushing NetWeaver in Russia at such convenient times? Maybe the time has not come yet for real integration and infrastructure software in Russia, maybe SAP prioritizes its efforts and resources in the application space, betting first on what it knows best – applications. But for sure, potential for integration solutions is out there!

Tuesday, September 23, 2008

Oracle's Industry Solution Push

While PAC's SAP Services Research Practice is obviously focused on SAP, we also do quite a bit of coverage on Oracle and other non-SAP application platforms in our SITSI research and customer work.

Attending Oracle Open World this week (+45,000 people!!), it is clear that Oracle is becoming more and more aggressive in positioning themselves as a leader in industry solutions through their various acquisitions, and along with their AIA (Application Integration Architecture) solution/initiative to offer their customers "integrated best of breed" suites.

While PAC believes it is a compelling message, it is clear that this is still a work in progress, for Oracle and its customers; and at the same time we also strongly disagree with Oracle's continuous labeling of SAP as just an ERP player, or even worse, "providing a good financial ledger." Come on guys!

On the other hand, there is no doubt that Oracle has drastically improved their industry solutions in sectors/segments such as utilities and tax & revenue (thanks to SPL), Retail (Retek, ProfitLogic, 360Commerce and others), Banking (i-Flex), Insurance and Telecommunications. However, from PAC's perspective and in conversations with many end-users at the conference, while Oracle's vision in each industry by offering cross-module process support and solutions is very intriguing, it seems half-baked... with a lot of vagueness around exactly what is being offered "out-of-the-box" and as a true turnkey solutions, as opposed to massive process re-engineering and integration projects!

Make sure to attend our webcast on the SAP Services market on October 2nd at 11am ET, where we will also spend a little time comparing the SAP & Oracle Services markets before diving into our SAP research. If you haven't received an invite, please email your contact info to me at [email protected]

Wednesday, September 17, 2008

Inside the Hype of TechEd 2008

A quick intro to PAC readers…

I’d like to thank the “Feeding the SAP EcoSystem” team at PAC for inviting me to be a part of their blogging team.

As I write my first piece for PAC, I am in a restaurant at the McCarran Airport in Las Vegas, where I just ordered some mystery meat I would not consume in non-airport conditions. While I wait to board my flight back to Massachusetts, it’s an ideal time to reflect on SAP TechEd 2008 and introduce myself to PAC readers.

You can see a link to my bio on the right column, but the short version is that I’ve been writing about SAP skills trends since 1995. After I launched in the summer of 2007, I added podcasting to the mix.

My take on TechEd ‘08

In my opinion, there were no “stop the presses” news releases at TechEd (you can check out the press clips and see if you agree...) Of course, two important items, the Oracle-SAP lawsuit and the pushback from customers over SAP’s maintenance fee increases, were not approved topics of discussion and received no formal airtime. At the TechEd press conference, we were told that no questions about the lawsuit would be answered. It was hard to resist not asking a question about it once the topic was muzzled, though I believe that the lawsuit will ultimately turn out to be nothing more than an expensive financial footnote for both companies!

SAP customer dissatisfaction with the maintenance fee increase is a bigger story, because it threatens to pose a setback to the impressive strides SAP has made with its customer base in recent years. But to be fair, the SAP customers I spoke to at TechEd were more focused on their own self-education than sounding off about the maintenance issue. A full discussion of the maintenance fee topic would consume the rest of this blog entry, so let’s put that topic in the “keep an eye on” category, and move on to the key themes of the conference.

My view is that most successful software vendors, SAP included, utilize a “carrot and stick” approach to motivate existing customers to spend more money. Prospective customers, of course, only see the carrot. The stick, in this case, is the maintenance fee increase, combined with the frustration of seeing a lot of sexy NetWeaver and eSOA demos, most of which cannot be utilized by the 4.6c customer base that has yet to upgrade. (By the way, SAP is supposedly dropping the “e” from eSOA in its latest product naming audible, but I’m keeping the “e” on there until SAP executives drop it from their PowerPoints!)

For the past few years, the real SAP “carrot” has been the perks of upgrading to the latest and greatest version of SAP, now ERP 6.0, and the features of that new platform, specifically, eSOA, and to an increased degree after the Business Objects acquisition, “Business Intelligence.” This is in line with the overall industry trend of repositioning ERP systems from transaction-based systems to intelligent application networks that leverage transactional data for strategic purposes.

The next thing…

The problem for SAP’s marketing team is that in recent years, customers have lost their taste for “the next big thing,” and they don’t tend to get too jazzed up about conference gimmicks like delivering cans of Coke onstage using NetWeaver Voice either.

What SAP customers want is not the next big thing, but “the next affordable thing” that can help their bottom line. Part of the appeal of both eSOA and Business Objects, is that both present opportunities for SAP users to do targeted projects that deliver a benefit without a massive infusion of capital.

So if SAP is banking so heavily on eSOA, why didn’t we hear more about it at TechEd? What SAP emphasized was not eSOA, but Business Process Management (BPM). eSOA is a technology that can help facilitate BPM, so we still see plenty of mentions of eSOA, but why did the emphasis shift? Cynics would say that SAP needed to trot out something new because “eSOA” has a few years of marketing mileage on its treads now, but I see a different answer.

The answer is that without BPM, SOA is ultimately going to fail, or at least fall well short of its buzz, and that would be very bad news for everyone in the SAP ecosystem. SOA represents the promise of innovating on top of the ERP core without altering the source code. Thus, one of the few things all ERP vendors agree upon is that SOA must not fail to deliver on this promise.

During educational sessions at TechEd, I found that SAP’s own instructors have different views on BPM, which sometimes adds to the confusion that these sessions are intended to alleviate. But one thing all BPM presenters emphasized at this year’s TechEd is that SOA without BPM is not going to work. Perhaps no one said it more memorably than Puneet Suppal of Capgemini, who, during a session he was giving with Marco ten Vaanholt, Global Head of the SAP BPX (Business Process Expert) community, said, and I paraphrase, “If your underlying processes stink, your SOA will stink also.” In other words, you have to get your act together on the BPM side before you can be effective with your eSOA projects. Yes, we’re back to “Garbage In, Garbage Out.”

This may open up a decent sized can of worms, because most companies who want to make business process changes will face organizational challenges. Still, the “process first” perspective does make sense. Properly realized, it will combine transactional stability with service-driven innovation, or maybe even co-innovation on top of that ERP core with customers and suppliers. This is the holy grail of ERP, and the best possible answer to the criticism of ERP’s historical stodginess when it comes to adapting to market conditions.

So that’s the context for SAP’s emphasis on BPM. And, just like “business process re-engineering” needed a tool (ERP) for it to gain commercial traction in the mid-90s, so does BPM require a set of tools, which is why SAP is now announcing the pending NetWeaver BPM release with vigor. If the popularity of the demo sessions are any indication, SAP customers are eager to learn more.

Netweaver BPM

Once code named “Galaxy,” the latest from the product team in Walldorf is that NetWeaver BPM will ship with NetWeaver 7.1.1, with a “fast track to ramp up program planned as of December 2008.” SAP does not want to be nailed down on a general release commitment for NetWeaver BPM (I know because I asked a BPM product manager directly), but my best guess is that a general release of NetWeaver BPM in time for the high power keynotes at SAPPHIRE 2009 will be SAP’s own internal goal. One pretty neat thing is that you can now download trial versions of both NetWeaver BPM and NetWeaver BRM (Business Rules Management) as part of SAP’s trial version of the NetWeaver Composition Environment.

With a new tool and a new approach comes the need for new skills. That’s a whole different conversation I will return to in future PAC blog entries. A “business process centric approach,” complete with new modeling tools, is going to require a different kind of SAP professional. This trend goes well beyond SAP, as we observe the overall convergence of business and IT, and the re-orientation of IT as being in the service of business drivers, with the goal of hiding the complexity from business users whenever possible.

The professional needed to facilitate these changes is being billed as the “Business Process Expert.” SAP is smart enough to realize it will need an ecosystem-wide response to train and prepare for these roles. That’s why we saw the emphasis at TechEd on two other announcements: the first-ever SAP BPX certification, as well as the release of "Process First," a book written by the SAP BPX community with an author credit to Marco ten Vaanholt, who led the effort to write, frame, and fine tune this wiki-based community project that resulted in a finished book. There’s a lot more to say about the skills side of BPM, but my flight is about to board, so this will have to wait for future blog entries. I welcome reader feedback about which aspects of the BPX skill issue are of most interest.

A lack of hype?

I want to close this entry with a few comments about the SAP customer base. With SAP, we are always aware of the hype factor, which is the gap between what SAP feels is important and what its customers place value on. In the case of BPX, as well as Business Objects, I find the hype factor to be surprisingly low. Customers may not be quite as pumped about these new trends as SAP’s marketing team is, but their interest level is high also. Evidence can be seen in the high attendance at relevant TechEd sessions; we can also point to the strong interest in NetWeaver BI, which has not been hampered by the challenges of combining Business Objects and SAP as much as some predicted. Then there’s the BPX Community itself, which at last count had more than 450,000 members, pretty big numbers when you consider the community was only launched in 2006.

But while the hype factor may be low, SAP customers are still more cautious about diving in than SAP is. One big adoption barrier: you have to be running on ERP 6.0 (and up to speed on NetWeaver) before you can begin to contemplate most of these new products, particular on the BPM/SOA side. We can point to customers on older R/3 releases who are still thinking in terms of ABAP and Basis, and their technical agendas are likely very different.

In conclusion, the TechEd 2008 headlines might not have been in large font, but the trends are indeed huge. It remains to be seen if the BPM era will deliver on its promise. One encouraging sign is the much closer collaboration between SAP and its customers, via SAP’s online communities. This should help keep the “hype factor” in check and keep SAP focused on helping companies solve their business problems - large and small.

Keep on checking back… I’ll be contributing more and more on topics from the field!

Is SAP Ready for the Financial Services Industry After All?

Yesterday, SAP announced that it had secured a deal with HSBC for the implementation of the NetWeaver platform. The focus will be to standardise and automate the bank's communications for the delivery of banking services to its corporate banking clients, as well as to enable customers to gain easier access to their banking information. This follows on from the deal won with Nationwide Building Society in March this year, which chose SAP’s Banking platform for banking, savings, mortgage and customer service systems.

I have to admit I was skeptical as to whether SAP would make progress in the banking industry so soon, particularly in the light of the financial turmoil that has cast a shadow over the industry as well as the economy on the whole. However, SAP’s increased investment in its solutions and vertical expertise seems to be paying off! Although IT spend in the banking business is expected to further slow down in 2009, and will inevitably delay new potential deals overall.

The vendor is managing to successfully raise its profile in the industry through signing deals in the non-core parts of the business with large multi-national banks (e.g. Lloyds TSB implemented SAP SRM and Bank of America chose SAP ERP), while participating in industry networks to encourage banking standards and the adoption of new technologies like SOA to push its image in the core banking space.

With two major deals secured in the UK banking sector in 2008 so far, this will add more credibility to SAP’s capabilities and portfolio in the core banking arena. However, it is still early days and we are yet to see the outcome of these projects. No doubt SAP will encounter some challenges - the back-office bank processes and IT landscape on the whole is very complex and unique compared to the back-office of other vertical organisations that SAP is perhaps more exposed to.

Additionally, while disruption can sometimes breed opportunity; if conditions were to worsen in the financial markets, decision making related to further large IT investments could be pushed 9-12 months as companies focus on just keeping the lights on. Let's all hope that's not the case!

Thursday, September 4, 2008

100,000 by 2010 is Back!

Back in 2006 at the SAP analyst event, SAP CEO Henning Kagermann, announced that the company's new goal was to broaden its addressable market to a size of $70 billion and to reach 100,000 customers by 2010.

Following the slower than expected uptake of its SMB products, this figure seemed to disappear... until now!

With the integration of Business Objects complete, SAP's customer figure has now moved from ~55,000 to ~75,000; and with a broadened SMB product portfolio that includes SAP's first on-demand ERP suite (Business ByDesign), the company again believes it can reach 100,000 by 2010.

Here's a recent comment from Leo Apoteker:
"We're committed to achieving 100,000 customers in 2010 and you can't do that without the mid-market."

It is clear that by mid-market, he means Business ByDesign. Executives followed this comment up by announcing that a more competitive CRM solution as part ofBusiness ByDesign is on its way (bye, bye SAP CRM On-Demand!), as well as analytics functionality coming from Business Objects On-demand, which derives a large portion of its current on-demand business from customers.

While the product development sounds great, scale will be needed for SAP to reach these still lofty goals... and this scale can only be reached with the help of partners!