SAP has mislaid its religion; swearing its once-holy message of tight combination between software applications as the key to enterprise resource planning ERP.
Beyond breaking up its strongly integrated package of applications–designed to automate corporate purposes such as general ledger, order entry management, and inventory management–the German software giant it is now preaching that integration is no longer even important.
So what’s essential now? According to SAP, joyful users and “pretty looking” applications.
SAP is launching a two-pronged campaign to change its image and make its applications easier to use and to value. The move comes on the heels of SAP’s extend into new territory–that of front-office applications, whose end users are unlikely to tolerate gray screen applications and complex user instructions.
The company is trying to dispose of its image as a creator of a highly technical software system that requires a master’s degree in R/3 to understand. It also is trying to outgrow the insight that execution of its system is likely to munch through all IT assets and take five years, requiring companies to pay out up to $10 on consultants for every $1 they spent initially on the software license.
To achieve those snooty goals, however, SAP is going to have to wipe five years of memory from the minds of corporate America, or at least persuade potential buyers that this is not their father’s R/3.
SAP–short for Systems, Applications, and Products in Data Processing–was formed in 1972 by IBM Germany consultant Hasso Plattner and four other colleagues who saw a need for packaged software to run on the hardware they were setting up for IBM customers.
“That was a time when people were leaving IBM to start consulting companies,” Plattner recently said in an interview with the Smithsonian Institute’s division of information technology. “But we left with the sole goal to develop standard software, and only 18 months after we started in 1972, we released our first standard software.”
That was System R, which in subsequent years became known as R/1 and later was followed by R/2 and R/3. But SAP’s first contract wasn’t for its standard software. Instead, it was for a custom software development project for Imperial Chemical Industry, a British-based multinational chemical maker.
Nevertheless, the deal was the shot in the arm SAP needed. SAP has been a major player in the chemical industry ever since, following the Imperial contract with ones from Dow Chemical, DuPont, and Eastman Chemical. All of those companies still are employing R/2, and are slowly migrating to R/3, the client/server version of the software.
R/3 first materialized in the late 1980s, when IBM rolled out its systems application architecture. Plattner immediately undertook the project to develop what eventually would become R/3, but he and his coworkers quietly decided to build it on the Unix platform rather than IBM’s. Development efforts went of for five years, and in 1992 R/3 was born.
The system was first installed at the Danish offices of a small Finnish company. It was targeted toward small companies while SAP continued to push R/2 to higher-end corporations. Then, in 1992, the market fell out of the mainframe industry and sales of giant computers stalled. R/3 had to scale up in order to meet the needs of large companies if SAP was to stay afloat. The company’s founders knew that Europe alone could no longer support their needs, so it was time for the company to take its new product to America.
Plattner flew to Los Angeles with hopes of landing some of the region’s small manufacturing firms as his first American clients. He did better than he could have hoped, signing his first deal with Chevron Oil, which has been a key SAP customer ever since.
SAP happened to land in America in the midst of a corporate revolution called business process re-engineering. All the Big Six software firms were racing to fix what ailed corporate America, which turned out to be its old style of doing business. SAP then entered the scene with a product that implemented many of the new business processes in the software, and hooked up with consulting firms such as Andersen Consulting to match its software to their business process consulting.
Today, SAP owns 32 percent of the ERP market and is shooting for 40 Percent market share. It is a $4 billion company, the fifth largest software firm in the world with 17,000 sites worldwide running R/3. Nearly all of the Fortune 500 companies run some piece of their vital business processes, such as monthly accounting or order entry, on R/3.
And now SAP is gunning for the front-office market, aiming to be all things software to corporations. It seems to be on the right track. The firm quickly is becoming to business what IBM was to business during the ’70s and ’80s, illustrated by the recent comment of one SAP customer who said, “We use to be an IBM shop. Now we are an SAP shop.”
As for SAP’s shift in philosophy regarding the need for tight integration, Plattner credits his change of heart to a grade school teacher who once told him that, “When you reach the point that you don’t change your mind anymore, you know you’re old.”