SAP looks beyond its borders

Ever since its foundation by five former IBM engineers in Mannheim 35 years ago, SAP AG has preferred to build rather than buy the products it sells. It is a policy that has endeared it to customers who prefer to buy integrated products suites, rather than suites of integrated products, and it has helped SAP grow to be Europe’s biggest and the world’s third largest software maker.

At its latest Sapphire customer conference held in May 2007 in Vienna, CEO Henning Kagermann said that SAP is now ready to change its ways. “We know that we cannot do everything ourselves,” he said.

This isn’t to say that, after years of refusing to emulate its major competitors by substituting M&A for R&D, SAP is about to change its spots and become a net buyer of product innovation. On the contrary, in announcing three recent acquisitions (see page 51), Henning took care to emphasise that such relatively small-scale acquisitions had and always will be a cost-effective extension to SAP’s in-house product development.

Instead, at Sapphire, Kagermann and the rest of SAP’s executive team spent most of their time lecturing their customers on the need to look beyond the confines of their own IT needs. In the coming era of what SAP refers to as “business at the speed of change”, companies will be driven by “silent transactions” that seamlessly connect customers to an invisible eco-system of suppliers connected across seamlessly integrated business networks.

As the world’s pre-eminent supplier of integrated business software suites, SAP believes it has a key role to play in the “business network transformation” that will make this vision a reality. It plans to do this by ceasing to position its products as self-sufficient source of integrated business services, and instead encourage its customers to treat SAP as their application backplane for their next generation infrastructure – the chief point of integration not merely for its customers systems, but also for the systems of its customers’ customers, business partners, and suppliers.

This is an important change of emphasis for SAP, as well as for its customers. SAP began the process of opening up its products to third parties several year ago with the launch of the NetWeaver integration platform, and the announcement of a roadmap for SAP Enterprise SOA (ESOA) – a product scheduled to ship, on time, before the end of this year. However, SAP may have an impressive track record for building software products but, so far, it has a much sketchier history of building the supporting multi-vendor ecosystems that determine whether such products are successful.

We cannot do everything ourselves.

Henning Kagermann, SAP

Kagermann aims to quell these doubts by pointing to a user group survey which indicated that 53% of its US customers expect NetWeaver to be their strategic integration platform by 2010. More than that, he also boasts about the recruitment of SunGard – the dominant supplier of risk management software – to be the first major third-party application vendor to choose SAP ESOA as a strategic delivery platform.

For a company traditionally as self-sufficient as SAP has been, there is always the suspicion that the talk of tighter relationships with third-parties is masking fierce internal objection. So far there is little sign of such tension as SAP: while the naysayers point to the abrupt resignation of Kagermann’s heir apparent, Shai Aggassi, as evidence of mounting tension, both Agassi and SAP insist the departure was affable.

In fact, if SAP practices what its CEO preaches, closer partnership with customers and partners ought soon to be one of the company’s key differentiators. As Kagermann told his customers in his keynote address: “differentiation through innovation is now key to successful business, but there is no longer time to innovate by building up your own expertise – you have to partner.”

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