Business ByDesign

SAP Business ByDesign: SAP’s Best-kept Secret

It has been almost 10 years since SAP Business ByDesign was first introduced. This enterprise resource planning (ERP) solution has always and only been offered as software as a service (SaaS). It was born in the cloud and launched in September 2007 with great fanfare. This came at a time when SaaS ERP solutions were still quite rare and just beginning to gain acceptance. Since then it has been deployed in more than 3,600 companies in 109 countries. And yet while customers seem very happy with their choice of solutions, in many ways SAP Business ByDesign is the Rodney Dangerfield of ERP – it just doesn’t seem to get any respect. While some of its most direct competitors would be thrilled with the level of success it has achieved, somehow pundits and some industry observers just won’t give SAP a break on the ByDesign front. Rumors of its death have surfaced periodically, and yet it lives on, but quietly. Perhaps that “quiet” is to blame for the apparent lack of respect. Perhaps it is time for SAP to raise the volume and build trust in the market, beyond its customer ranks.

The Evolution of SAP Business ByDesign

Before SAP Business ByDesign was first introduced, SAP already had two ERP products and deep market penetration. SAP ERP (which has gone through its own evolution and several different names) targeted the large (and very large) enterprise, while SAP Business One was aimed at small to mid-size businesses (SMBs). There was (is) also SAP Business All-in-One, but in reality that was never a separate product, but rather SAP ERP packaged with “best practices” aimed at simplifying the (large enterprise) solution for mid-size businesses in specific industries.

In order to offer a SaaS solution, SAP could have taken a few different paths, including moving either of these products to the cloud. SAP ERP was the more robust solution, but to come down market, it would have had to shed some of that complexity or be overkill for an SMB or even for a subsidiary or division of a large enterprise.

Ultimately, starting over allowed SAP to architect the solution specifically for the cloud, drawing on acquired and organically developed leading edge infrastructure. And even more importantly, SAP was able to draw on the thousands of person-years of experience accumulated by its staff in addressing the needs of the large enterprise. After all, the needs of mid-size companies are not all that different from the needs of their larger counterparts. But they don’t have the deep pockets of a large enterprise and can’t afford the time it takes to wade through the complexities that had evolved with the large enterprise solution. The initial goal of SAP Business ByDesign was to simplify for the mid-market, while also delivering a 100% cloud-based solution, a clear differentiator at the time.

Both of those goals were achieved early on in its life, but that proved not to be enough. The earliest version of SAP Business ByDesign was a single-tenant solution. While the first charter customers were perfectly happy with this choice, SAP was not. Single tenancy proved to be an obstacle to the profitability needed to sustain a level of aggressive development of both the software and the market. This resulted in the need to re-architect the product, causing SAP to go quiet as it developed this new architecture.

The re-architected SAP Business ByDesign became the platform of choice for development of all cloud offerings at SAP – for a time. But then came the acquisition of SuccessFactors and the accompanying infusion of “cloud DNA”. All of a sudden the ByDesign platform wasn’t important. The powers that be at the time (SapphireNow May 2012) said, “Customers don’t care about platforms. They only care about beautiful applications.”

Then came Sapphire Madrid (November 2012) and there was a new platform in town: The HANA platform. It was decreed that SAP Business ByDesign must now run on HANA, SAP’s “game changing” in-memory database and the basis for this cloud platform. From a database perspective, SAP Business ByDesign gained little from this since it already had in-memory powers built in. The real benefit would come later in conforming to SAP standards and therefore benefiting from technology being developed by other groups (under other budgets). And thus another quiet time ensued as the development team was (again) working under the covers.

What’s Next? A 3-Pronged Strategy

Now that the heavy lifting has been done in terms of re-architecting for the HANA platform, it’s time to kick things into high gear. So, what’s next? SAP has a three-pronged strategy for SAP Business ByDesign:

  • Deliver best in class innovation
  • Drive meaningful demand
  • Develop successful partnerships

Sounds simple, but then the most successful strategies usually are. Interestingly enough, while it was the shifts in platform that kept the lid on SAP Business ByDesign in the past, Mint Jutras believes it will be the platform that could potentially blow the lid off, or at least provide a stronger voice in the future. And the first part of the strategy (best in class innovation) is likely to play a very meaningful role in enabling the other two.

Delivering best in class innovation

Innovation encompasses both technical strength and functionality. The underlying platform brings the technical muscle. But yes, functionality is also still important, and SAP is setting about enhancing the functionality built in to SAP ByDesign, specifically for the core verticals where it has enjoyed the most success. While it has been sold into 29 different industries, its strongest presence is in professional service organizations, wholesale distribution, high tech and consumer products, industrial machinery and components (IM&C), the public sector and higher education. We expect to see the team place more focus on manufacturing and production in the coming months as well.

But SAP will choose where to invest within these industries carefully in order to fill gaps in the market. Higher education provides a good example. SAP has chosen not to invest in student management or student loans, simply because those needs are already well addressed by other solutions. The focus here instead will be on integration.

But integration swings two ways. Solutions for student management or loans are most likely to come from existing or potential partners. But SAP will also be integrating SAP Business ByDesign with apps and tools from its own portfolio. Some of the apps fall into the category of what SAP calls its own “best of breed line of business (LOB)” applications. These include SuccessFactors Employee Central for employee management and Concur for expense management and the Ariba supplier network. It will also take advantage of the business intelligence tools from the Business Objects side of the house and layer analytics on top of SAP Business ByDesign.

The user experience (UX) provides a good example of how the SAP Business ByDesign team is now able to leverage innovation developed by other SAP teams – one of the advantages of the prior work done “under the covers.” The team was able to use the underlying UX libraries created by the teams developing the SAP Fiori apps for SAP ERP. SAP Business ByDesign doesn’t have to develop any style guides. They simply use those developed by the Fiori team. This was how the SAP Business ByDesign team was able to completely renovate its user interface from Silverlight to HTML5 quickly.

The conversion to the HANA platform is SAP Business ByDesign’s ticket to other services as well, services that lead to more features and functions. Like invoice as a service – the ability to take a picture of a document and turn it into an invoice with no optical character recognition (OCR) software required. To the business user, this conversion appears to be magic. The HANA platform is the pixie dust sprinkled on (or rather under) SAP Business ByDesign that makes the magic happen.

And the other advantage of the HANA pixie dust is the dramatic simplification of the data model. How is that possible? Doesn’t the operational and transactional system of record of your business require the same level of complexity, perhaps even more complexity, as even the smallest companies deal in global markets and a digital economy? The simple answer is, “No.”

Think about how and why the data in systems has become more complex. A single transaction needs to capture essentially the same pieces of data it always did. Getting this kind of transactional data into ERP has always been fairly easy. Getting insights, answers and decisions out? Not so easy. Just sorting through all the raw transactional data each and every time you had a question simply took too long, even with simple questions like, “How much inventory do I have?” You couldn’t very well add up all the stock going in and out since the beginning of time. It would simply take too long.

So you had to anticipate what you would need up front and address those needs by adding aggregates (totals). But a single aggregate wasn’t enough. Over time you learned you needed to know the total receipts and issues in a given month. And having monthly totals led you to ask for quarterly and annual totals. You anticipated that and added those aggregates in. It works for a while, but then you find you need those totals by country or region or business unit. But you didn’t anticipate that, so you can’t answer that question without long processing times (to find and add up the transactions), or an invasive and disruptive change to the system. And what happens when you reorganize territories or business units?

The speed of HANA now allows you to eliminate many of those aggregates. For very complex join operations it still makes sense for SAP Business ByDesign to pre-calculate rather than re-calculate each time (and it does). But why bother to keep track of simple transactional data month-to-date, quarter-to-date, year-to-date, by country, region or business unit, when in the blink of an eye you could add it all up? And if all of a sudden you need to slice and dice the data a different way? No problem. And think of the amount of code no longer needed just to maintain those totals. That is development time that can now be spent providing real and impactful innovation. A simplified data model leads to added agility in the solution, which translates into added agility in your business.

The Value of Agility

We live in disruptive times. The 2016 Mint Jutras Enterprise Solution Study found 88% of companies believe they face some level of risk in their businesses and/or industries being disrupted by new innovative products, new ways of selling or pricing existing products or services, entirely new business models, or some combination of all of the above. And then of course there are still the more traditional disruptive factors like expansion and growth, organizational restructuring and regulatory changes, just to name a few. All this disruption can have a cascading impact on business application requirements, making agility – the ability to easily innovate, evolve and change – even more important than current functionality.

Our 2017 Enterprise Solution Study confirmed many solution providers have increased the pace and volume of upgrades (Figure 1).

Figure 1: How has the pace of innovation delivered changed?

Source: Mint Jutras 2017 Enterprise Solution Study

But Mint Jutras knows of no other solution provider other than SAP that has gone down the path of removing aggregates to simplify the data model and the associated code – certainly not to this extent.

Driving Meaningful Demand

So will this innovation immediately drive meaningful demand? Not necessarily and not if SAP remains quiet. It must raise the volume with new and different ways of marketing the solution, new ways that are reflective of how searches for new software are conducted today. Like other functions in any organization today, marketing must go through a digital transformation.

The SAP Business ByDesign team is responding by building out a Digital Demand Generation Engine (DDE). They understand people don’t respond to the same efforts that used to work. They know the majority of B2B potential buyers conduct research outside of the normal 9-to-5 workday. Search engine optimization (SEO) is critical. Does SAP Business ByDesign even show up in online searches? And what happens when it does? The speed with which SAP responds and acts on any inquiries will have a direct impact on whether it is even invited to the party. The goal is to respond immediately 24/7.

This of course, will have a significant impact on its success in the third prong of its strategy. By developing a “virtual agency” that delivers all components of a campaign (emails, landing pages, supporting materials for telemarketing and social media), SAP can provide real (and much needed) marketing support to its partners.

Developing Successful Partnerships

Much of SAP Business ByDesign’s early success was achieved through direct sales efforts. But that has changed. In 2016 partners wrote 70% of SAP Business ByDesign contracts. Indeed it would appear the platform has continued to bolster this transition, as evidenced by the 2,641 partner-built add-ons available today.

This is necessary in order to get to the next level, and if successful could lead to explosive growth. A partner strategy is at the very root of SAP’s prior success in the SMB market with SAP Business One. That means building a successful indirect channel. It may indeed tap into the existing SAP Business One channel, which has grown that installed based to over 55,000 customers, supporting over a million users. Or it could recruit from its competitors. Either way, SAP plans to double the SAP Business ByDesign partner capacity in the next year.

ConClusions

It’s about time for SAP Business ByDesign to leave its Rodney Dangerfield image behind. SAP’s three-pronged strategy for SAP Business ByDesign…

  • Deliver best in class innovation
  • Drive meaningful demand
  • Develop successful partnerships

… seems to cover all the bases. It will continue to invest in the core functions of ERP. In fact SAP has vowed to add an additional 100 developers to the team. It will begin to leverage its investment in the underlying architecture to improve the user experience and integrate to other “best of breed” functionality within its own portfolio, in its partner community and perhaps even beyond.

And it plans to raise the volume of its marketing beyond the whisper that it has been, with the hope of attracting new partners and even more new customers.

In combining these three, Mint Jutras would contend that the platform – the very thing that caused SAP to go quiet in the past – should now be the reason to shout. A word of advice to SAP: Shout loud and clear.

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Is SAP Still in SMB Stealth Mode? Watch Out, Changes are Looming

Many think SAP is just for the big guys. The company is the closest you get in the ERP market to a household name, and, after all, it was in the large enterprise where it made that name for itself. In reality though, SAP plays in markets that include companies of all sizes. A good 80% of its customers are in the small to midsize enterprise range. And yet today small to midsize companies in search of a solution don’t immediately think “SAP” and they will have a difficult time discovering all that SAP has to offer them.

SAP’s competitors perpetuate the “big guy only” misconception, along with  “expensive” and “complex” qualifiers. They are like a dog with a bone, refusing to let go, hoping to lead prospects away from the 800-pound gorilla. Pundits who largely follow the large enterprise space contribute as well, along with the publicity (both good and bad) from high profile customers that are also household names. But SAP must also share some of the blame because of one thing it is so very good at: Speaking in one voice.

SAP employees stay on message. And the message is couched in the native language of SAP, which is the language of IT in the large enterprise. Although the latest overarching message these days is “Run Simple,” that alone doesn’t say enough. SAPers either talk at such a high level of abstraction that it becomes meaningless (your world will be a better place), or they talk technology.

In speaking to the decision makers and business leaders in small to midsize businesses (SMBs), you might as well be talking Klingon. They have their feet firmly planted on the ground. They want to hear how a solution will solve their immediate problems, address their challenges and bring value to the business. They want specifics. And they want to buy from a company they can trust.

The combination of negative hype and the “one voice” of SAP also might lead SMBs to think SAP is a one trick pony, with only a single product to offer, one that is clearly beyond their reach. Nothing could be further from the truth. Not only does SAP have three separate and distinct ERP offerings, it also has other offerings that sit on the periphery, outside the boundaries of ERP. These include talent management (SuccessFactors), travel and expense (Concur), a supplier network (Ariba), analytics (Business Objects) and a front office (SAP Anywhere). And this is just a partial list.

Let’s start with core ERP. At the top is SAP ERP, which has been brought to market under different names during its evolution. But make no mistake; this is definitely a solution that is meant to satisfy the needs of the largest, most complex enterprises in the world. Older versions were known as SAP R/2 and R/3 but more recently it was simply referred to as SAP ERP or ECC, providing the core of a larger Business Suite(adding CRM, SRM, SCM and PLM to ERP). The latest incarnation is S/4HANA, which is both evolutionary and revolutionary at the same time. It provides the same functionality as SAP ERP but has undergone a rewrite to take advantage of the powerful in-memory technology of SAP HANA. This is the large enterprise ERP for which SAP is famous (infamous?).

But this is not a “one size fits all” solution. SAP also offers SAP Business One and SAP ByDesign. Up until recently, it also marketed Business All in One, but in fact that was/is not a separate product. It was a version of SAP ERP packaged with industry templates and best practices, purportedly designed to simplify the implementation, thereby making SAP ERP more digestible for the mid-market. Because it was essentially the same product but with a different name, it also added some confusion. SAP appears to be backing away from that branding. I think that is smart. Can SAP S/4HANA work for this midmarket? The answer is yes, particularly where that smaller, midsize company is a division of a large enterprise that has standardized on SAP solutions. But these will be the exceptions to the rule.

SAP is also getting smarter about how it targets these three products to different segments. SAP has formed an SMB team to specifically address the market of companies with 1500 employees or less, and has defined “small” as companies with less than 250 employees. It will market SAP Business One to small companies looking for an on-premise or hosted solution (partners will provide the hosting). It will be sold largely through partners, which will provide both advocacy and intimacy to the customer. SAP Business ByDesign is available exclusively as a multi-tenant SaaS (software as a service) solution supported by SAP itself. The target is generally the mid-market but can come down into the small company range for those interested in a true SaaS solution from SAP.

However, both SAP Business One and SAP Business ByDesign have suffered from a lack of respect in the market. Competitors often write Business One off, telling me they hardly ever see it in a competitive deal. And yet Business One is implemented in over 50,000 small companies around the world and SAP is adding about 1,000 new customers a quarter. That tells me there are hundreds of deals where these competitors never get invited to the party.

Rumors of the death of Business ByDesign have been rampant for years and unfortunately SAP has allowed its critics to have had a louder voice in the market than SAP itself. In the meantime, SAP has been (rather quietly) growing the installed base to about 1,000 customers, which is larger than many customer bases of some of those competitors. Respected journalists and analysts have recently admitted ByDesign is in fact not dead. I couldn’t/can’t resist saying, “I told you so.”

This might all seem like SAP 101 to veteran industry observers. But it also might come as a surprise to learn that your typical decision maker and business leader of a small to midsize business doesn’t follow the (ERP) space that closely. Those business leaders are too busy following their own industries. So they are easily confused by the progression of product names and even more easily confused when target markets for different products overlap. And they are not well equipped to distinguish hype and myth from reality. To convince them one way or the other, you have to understand how they approach software selection and you have to speak their language. And you have to speak it loudly and clearly. That is where SAP has not done a good job.

I am optimistic that is about to change under some new leadership at SAP. Barry Padgett took over as President of the SMB team last July. He came over from the Concur team, bringing a new perspective. Barry “gets” SMBs. They need a lot of the same features and functions that their larger counterparts need, but they don’t have the large IT staffs or the deep pockets. They expect products to work seamlessly – open and connected. They don’t go out looking for technology. They go out looking for solutions to problems and answers to questions. They expect value. They need to see a path forward. And to connect with them, you need to be talking in terms they clearly understand.

Barry and his new CMO Mika Yamamoto (who came to SAP from Amazon) also understand how most software searches begin these days. Much of the legwork and due diligence is done before a prospect ever engages with a potential solution provider. Today an online search for solutions for SMBs does not lead directly to SAP. And even if you land on SAP’s website, there is no clear path to show you what you need or how SAP can help. So clearly SEO and website redesign is top on Mika’s priority list.

But both Barry and Mika know that it can’t end there. They must have a louder voice than their critics. And remember all those products in SAP’s portfolio that sit on the edges of a solution: talent management, supplier networks, analytics, travel and expense, eCommerce (front office)? SMBs have the same kind of needs as their larger counterparts in all of these areas. But they don’t have the internal expertise to assemble a solution that is not already seamlessly connected.

It is not enough that these edge solutions are available from SAP; they must be both affordable and integrated to SAP Business One and SAP Business ByDesign. These kinds of connections are certainly on the roadmap, but they can’t come too soon.

The Internet has leveled the playing field, allowing SMBs to participate in a growing, global market. But many won’t be able to compete effectively with their existing solutions. This opens up a world of opportunity to SMB solution providers. Look at the success SAP has had in the small to mid-market already. I am not advocating the SMB folks at SAP go off message, but I am advocating they articulate that message in a different voice. That voice needs to be loud and proud. They need to keep the dialogue going with existing customers and keep the development engines churning. While I also believe there is plenty of opportunity for all those with good, solid, technology-enabled solutions, if the new leadership team can deliver on these fronts, they will truly be a force to be reckoned with.

 

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SAP Anywhere Moves Beyond eCommerce to Provide Complete Front Office

Marketing, Sales and Service for SMBs

At first glance SAP Anywhere might appear to be just another new eCommerce solution for online retailers. But if you dig a little deeper you find much more. Purpose built for the small to medium size business (SMB) with a digital presence, it is a complete front office solution. It is a multi-channel commerce and marketing platform designed to be mobile first, low-touch and easily extensible. It supports SMBs in their efforts to:

  • Design and manage marketing programs and leads
  • Manage inside sales and customer service
  • Have visibility into what’s being sold, through which channel
  • Process online and in-store orders in one place
  • Track and manage inventory

Yes, SAP Anywhere targets retailers, but also recognizes the evolution in the way products are bought and sold today. Not only do retailers sell through multiple channels (online, in store and anything in between), but also more and more manufacturers and distributors have at least one sales channel where they eliminate the middleman and sell directly to the consumer. This places new demands on the business at the point of sale, demands typically not easily addressed by back office solutions such as enterprise resource planning (ERP).

SAP has taken a modular approach to satisfying these needs. Rather than building more complexity into the ERP solution itself, forcing upgrades or replacement, it loosely couples the front office to existing back office solutions. If you are an SAP Business One or SAP Business By Design customer, the integration is out of the box. But the platform approach of SAP Anywhere also allows it to be easily connected to any back office – virtually anywhere.

Supporting Any Model, Anywhere

When it comes to managing the sale of goods, retail and manufacturing/ distribution are typically worlds apart. In retail, at the point of sale you deal with cash, check or debit/credit card; the customer walks away with goods in hand and inventory is depleted. In manufacturing you process your customer’s purchase order, create a sales order and subsequently ship and invoice, relieving inventory and creating accounts receivable. Later you receive cash and apply the cash receipt against accounts receivable either on an open item or a cash balance basis.

Receiving cash in a traditional point of sale system in a retail environment, either in store or online is easy. Managing an open account is more difficult. For a manufacturer or distributor using an Enterprise Resource Planning (ERP) system, managing accounts and accounts receivable is standard practice. Processing a cash sale is more difficult.

In a retail store, the cash in the drawer is reconciled against the sales recorded at the end of the day. In a manufacturing or distribution environment shipments, invoices and cash receipts are reconciled at the end of the month. Yet in all cases, everything must be posted to the general ledger in order to create a balance sheet and profit and loss statement.

So what happens when a manufacturer or distributor sells directly to a consumer? It happens more and more today in showrooms and factory outlets, as well as online. In eliminating the traditional retailer, does the manufacturer need to invest in a retail point of sale (POS) solution, an eCommerce solution, as well as a back office ERP solution… and then interface or integrate them all in the hope they will one day all work seamlessly?

SAP Anywhere supports all these different environments at the point of sale without causing you to jump through hoops, automatically sending the necessary transactions back to ERP, whether you post an order, to be followed by shipment, invoice and payment or whether it all happens at once. And with SAP Anywhere, it’s not just about being able to take cash for a product in hand. Manufacturers or distributors might have a virtual showroom from which you can place a more traditional business-to-business (B2B) order. The manufacturer or distributor might have the goods in stock to be shipped and invoiced, or it might take an order, source the product and have it shipped directly to the customer. SAP Anywhere supports any and all of these different business models.

And these business models, and even prices, may vary by channel. Are you selling direct, through distributors or through online commerce companies like Amazon or Alibaba? Today are they all forced to use the same catalog and pricing? Or are you forced to create (maintain) separate catalogs for each? Can you tie a channel to a specific warehouse or fulfill all orders from a central distribution point or anything in between? If using a central warehouse, can you reserve inventory for a specific channel? All of these options are supported by SAP Anywhere. Perhaps SAP should call it SAP Anywhere Anyhow.

Flexibility in Payment

SAP Anywhere can also accept a variety of payment methods common in a combination of online and physical retail outlets including in store, showroom, warehouse or simply “in person” transactions (think about a service technician selling a spare part). These payment methods include cash, debit card and stripe (payments infrastructure).

In a physical setting, the application itself supports bar code scanning directly from the mobile device on which the sale is captured, without any added hardware. Or you can add an external scanner connected via Bluetooth. In addition to the scanner you might also connect a printer and make use of cash drawer functions that allow the use of any personal computer with a “locked” cash drawer, all while keeping track of total sales for any day broken out by payment method.

Customer Lead Generation

Completing a sale is great, but not necessarily unique to SAP. However, there is more to the front office function than just selling. The front office is also tasked with creating demand and acquiring new customers. These marketing functions are typically supported by separate applications, if at all. Many SMBs today see digital marketing as an affordable alternative to more traditional software to manage marketing campaigns. But they then struggle to tie these digital campaigns back to the transactions for closed loop marketing.

The next area of investment in developing SAP Anywhere is in the realm of digital marketing. Look for instant integration with Constant Contact and Mail Chimp, both of which can track clicks and other campaign statistics. Next on the docket are search (think Google ads) and integration with social media to integrate campaigns into Facebook, Pinterest, Twitter, Instagram and LinkedIn.

Where and When?

SAP Anywhere isn’t available everywhere… yet. It launched in Beijing in October, in partnership with China Telecom. SAP is planning to launch in the United Kingdom soon, to be followed shortly thereafter in North America. But it will need to continue to expand geographically if it wants to achieve its goal of 100,000 customers within five years. Along with that customer count goal comes an annual revenue goal of $200 million. Because this solution is completely cloud-based, all sales will be by subscription.

If you do the math, this means average annual revenue per customer of just $2,000, making it quite affordable and appealing to the SMB market.

In Summary…

SAP seems to have very aggressive plans for SAP Anywhere, targeting growing SMBs interested in having more customers. And today, who isn’t? The Internet levels the playing field for expansion and growth. But growing your customer base today also requires a digital presence – one that is very carefully orchestrated from lead generation to customer acquisition to customer retention. Don’t settle for just one piece of the puzzle. Make sure you start down a path that can take you Anywhere you want to go. Perhaps SAP Anywhere can help.

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SAP Leverages the “Power of Big” to Benefit SMEs

Some common myths and misconceptions in the world of ERP are hard to kill, particularly when competitors and pundits just won’t let them die. Among these common myths is the perception that SAP is just for the big guys. Yes, the SAP Business Suite and even some predecessors to the Suite are installed in a large percentage of the Fortune 500. And yes, some of them cost millions of dollars and took many years to implement. Of course there are some horror stories, but I would argue those exist for any major ERP vendor.

I have to admit, during my 30+ years of working for software companies (but never for SAP), I might have encouraged some of those misconceptions, just as SAP’s competitors do today. But now, as a recovering software executive turned data junkie, I tend to look beyond the rumors and misperceptions. I go for the facts. Here are a few that are hard to argue with:

  • SAP has about 263,000 customers
  • 80% of them fall in the small to mid-size (SME) bracket. Do the math. The answer is 210,400.
  • SAP does not sell just one product. There is the Business Suite, but also SAP Business One and SAP Business ByDesign (no it is not dead or dying). SAP Business All-in-One is the Business Suite repackaged, by industry, for medium size businesses. You might choose to call it a different product or not, but it really matters little. Repackaged with best practices included, it makes the Business Suite more attractive to smaller (but not too small) companies.
  • SAP Business One, which addresses the lower end of the SME market, is installed in over 45,000 small businesses.
  • SAP’s ecosystem of partners that support small to mid-size businesses is 700 strong and growing.

I am sure one of SAP’s goals for this year’s annual SAP SME Summit was (once again) to help dispel these myths and misconceptions. I am equally sure that SAP understands it will take more than just bringing together customers, press and analysts in its hip New York City office to counter these perceptions. Instead, it seems to be effectively leveraging its extensive resources in order to help small and medium size businesses. Here are a few of different actions it has taken recently:

  • SAP HANA 9 can now be run on less expensive hardware
  • Powerful data visualization tools are available with a copy of SAP Lumira, free to any SAP customer
  • Fiori apps, providing an intuitive and modern new user experience, are now included for free (with paid maintenance) with SAP Business All-in-One
  • A 0% financing program, designed specifically for small businesses, as well as SAP’s partners that sell directly to them. This is a “buy now, pay later” option that gives the small business free financing for 24 months, while the partner gets paid within 5 days.
  • A free connection to the Ariba Network, which connects over 1.6 million companies in 190 countries, allows the small business to list its products. Although the free version does not allow bidding and purchase from the site, this is an effective way for small businesses to reach a large potential group of buyers.

It takes a large company with deep pockets and extensive resources to be able to make these kinds of offers to SMEs. Yes SAP continues to be the 800-pound gorilla in the ERP space but that doesn’t mean it can leverage the “power of big” to the benefit of the little guy.

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Rumors of the Death of SAP Business ByDesign Greatly Exaggerated

I have been hearing rumors about the death of SAP Business ByDesign for several months now. Most of them come to me from SAP competitors, although a few have come through ex-employees. Note the emphasis on “ex.” No employee of SAP has ever confirmed or even hinted at this. However I have to admit the messaging around Business ByDesign has not always been crystal clear, which has allowed for these rumors to spread.

Prior to the SuccessFactors acquisition Business ByDesign was positioned as the platform of choice for development of all cloud offerings. But with the acquisition and the accompanying infusion of “cloud DNA” that story changed. All of a sudden the Business ByDesign platform wasn’t important. The powers that be at the time (SapphireNow May 2012) said,  “Customers don’t care about platforms. They only care about beautiful applications.” We heard less about By Design and more about the benefits of loosely coupled applications over tightly integrated ones. The market interpreted that to mean that Business ByDesign would be broken apart into different bits and pieces and might not survive as an integrated suite. SAP didn’t go out of its way to squash that rumor, so it too spread.

Then came Sapphire Madrid (November 2012) and there was a new platform in town. The HANA cloud platform started showing up on slides with little or no fanfare, and less explanation. The more SAP talked about its cloud strategy, the less we heard about Business ByDesign. Hence more confusion.

Until now

Earlier this week SAP presented a Business ByDesign strategy update to several industry analysts, including yours truly. Most importantly, it positioned Business ByDesign relative to other products in its portfolio. While I often find SAP graphics confusing in that they are too technical and attempt to say too much, I found the graphic shown refreshingly effective.

BBD

But it does assume you know something about SAP products, so let me explain. Business ByDesign is essentially a midmarket product, targeting companies that are smaller than the very large enterprises where the Business Suite is sold, and companies that are bigger than the SMBs which is the intended market for Business One. Business ByDesign shares this space with Business All in One, which sits a little higher. Remember, Business All in One (BAiO) is essentially the same underlying ERP that is a big part of the Business Suite. But BAiO bundles ERP with industry-specific content and best practices to make it a better fit and an easier implementation for those midmarket companies in (many) supported industries – midmarket companies that don’t have quite the deep pockets of the large enterprise.

You’ll notice BAiO also dips down into the Business ByDesign space. Business ByDesign is SaaS; BAiO is not, although SAP does offer some cloud alternatives for the Business Suite and BAiO, which have traditionally been deployed on-premise. But these cloud options are more like a hosting environment than SaaS. This overlap might result because of deployment preference or it might result because industry-specific requirements are not be satisfied with the Business ByDesign suite.

But you will also notice the Business ByDesign block extends upward into the top of the midmarket and also encroaches on the large enterprise space as well. Business ByDesign will be offered as two different packages, under two different names, but with one single code base. Business ByDesign is the complete suite, while SAP Cloud for Financials is a subset, including the finance and accounting piece of ByDesign. Even though it will share a code base, the code base was tweaked so that SAP Cloud for Financials could stand alone, without the other non-accounting “legs” of the solution.

The reasoning behind this split into two packages is to address two different buying patterns. SAP Business ByDesign is intended for “Mid market companies and subsidiaries [that] expect an out-of-the-box ready-to-use suite with open interfaces.” SAP Cloud for Financials (the subset) is for “Large Enterprises [that] expect an open ERP backbone to be complemented with SAP and non-SAP Line of Business applications.” While the Business ByDesign buying pattern is pretty clear, the SAP Cloud for Financials might require a bit more explanation.

Conceptually, these two different approaches aren’t all that different. Few large enterprises today are huge monolithic organizations. Instead they are comprised of operating units, divisions and/or business units. While these units might have some operational autonomy, financials will have to be consolidated at a corporate level. Where these units operate as a separate legal entity, a full ERP solution is most likely needed. While in the past these units may have been left to on their own to select and implement ERP, today, standards are more the norm. The 2013 Mint Jutras ERP Solution Study found 94% of companies (with multiple operating locations) have defined standards for ERP today. What better way to enforce these standards than through a cloud-based SaaS environment?

Where does Business ByDesign fit in this scenario? It fits as an integrated suite at the subsidiary level. A lot of different ERP vendors talk about this two-tier kind of approach. Some even advertise they can integrate with SAP at the corporate level, simply because of SAP’s dominance here. A cloud solution at the subsidiary level has a lot of appeal here because it helps the enterprise assert a level of control while also providing some flexibility and autonomy at the subsidiary level.

But how about if we pull a switch here? What if we start to think that maybe the corporate financials might be due for an update or even a major overhaul? With the siren call of the cloud becoming more and more compelling, why not consider replacing that legacy accounting solution at corporate with a modern, technology-enabled, cloud-based solution? You might not think the financial modules of an ERP designed for a midmarket company have the accounting chops necessary to support a large enterprise. But then most accounting applications designed for the midmarket aren’t built by SAP. In fact, SAP can and has used the same design team for Business ByDesign (and therefore SAP Cloud for Financials) that architected the Business Suite. And at that level SAP has dominated for years.

All told, this one simple graphic speaks volumes about the relative positioning of the SAP products. Is there room in SAP’s strategy for three different products (four if you count BAiO, with its separate go-to-market strategy)? I am not only tempted to say yes, I am tempted to say, “Hell, yes.” Think about it. SAP is the 800 pound gorilla and even 100 pound gorillas can handle a diverse portfolio.

Addressing Concerns

So what about some of the accusations and assumptions that have been floating around the rumor mill? Let’s counter a few of them.

“SAP is pushing Business One in the cloud instead of Business ByDesign.”

ByDesign has two characteristics that define it: it is a midmarket suite and a cloud solution that is deployed exclusively as software as a service (SaaS). It was never intended to replace SAP Business One at the low end of the market, but when a small company wanted SaaS ERP, it was the only product SAP had to sell. Now that a “cloud” option exists for Business One, that is no longer the case. This is a clear segmentation of the market by company size. Also, Business One has momentum. With over 40,000 customers and a large and mature channel in place, now that a cloud option is available it is only logical it is starting to gain its own fair share.

“SAP is no longer developing the product.”

SAP has been continuing to develop Business ByDesign, but these efforts might not have been particularly visible over the past couple of years. While SAP Cloud for Financials and Business ByDesign share a common set of code, some effort was involved in order to allow SAP Cloud for Financials to stand alone and yet be easily “coupled” to other solutions. This tends to be “under the covers” work.

And then there is HANA. Business ByDesign pre-dates HANA.  It was built in the NetWeaver era and used MAX DB (database) and TREX (search and classification). In order to take advantage of its advanced technological capabilities, Business ByDesign also had to transition to HANA, resulting in more “behind the scenes” work.

SAP assured those of us on the recent call that it was continuing to invest in the product and the platform. That said, it is also (better) defining the current target market. SAP will focus on developing the ERP backbone and specific capabilities for service industries, while also adding (open) integration capabilities. It will continue the transition to HANA for scale and extensibility. And it will also transition to HTML5 and benefit from the work done on the Fiori applications for a responsive, mobile-first user interface.

“Business ByDesign is a technological dead end. It is based on Microsoft Silverlight.”

See answer above.

“SAP themselves view it as a failure; otherwise it would be available world wide. Instead it is only available in a few countries.”

Twenty four percent (24%) of Business ByDesign business has been in the US and 32% in Germany. But it is available in 15 different countries. Is it concentrating its attention on all 15? No, but then not all 15 of them have really strong economies today. The SAP installed base is a prime market for Business ByDesign so SAP is going where it has the most customers and can make the biggest bang for its buck. That only makes good business sense.

Three more countries are planned for 2013 (New Zealand, Japan and South Africa) and an additional 3 are planned in 2014 (Brazil, Belgium and Singapore).  In addition customers are running customer-specific localizations in another 31 countries.  How many countries does it need to be in?

Summary

The supposed death of Business ByDesign seems to just wishful thinking on the part of some competitors. Although I also observe other SaaS ERP companies welcoming SAP onto their turf, as much for validation as for healthy competition. Let’s face it, all other ERP companies love to single out those competitive deals where they have beaten SAP.

Instead of a death knell, I am seeing renewed focus and commitment across SAP at the board, and executive level, as well as in the field. This represents a commitment to the cloud strategy in general and Business ByDesign specifically. Now, more than ever, SAP is clear about its target for the product:

  • The SAP installed base and upper mid-market are key for the Business ByDesign suite. Customers with higher revenue and user count threshold are prime targets as well as subsidiaries of large enterprises.
  • Large enterprises will be the target for packages such as SAP Cloud for Financials and other line of business cloud solutions like SAP Cloud for Customers and SAP Cloud for Sales. SAP will stress integration capabilities with SAP and non-SAP cloud / on premise systems.
  • Its primary industry focus will be professional services, public services and distribution.
  • While the product is available in other countries, SAP will focus its sales efforts where it has its largest installed base and where economic indicators signal a strong market. As a result, go to market efforts will focus on the US, Germany, the UK, Netherlands, Canada and Australia.
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Impressions from SAP Americas Partner Summit: Partners Make it Real

Tis the season for partner summits. SAP Americas Partner Summit was the 3rd of these I attended in a week and a half. This was the first of this type of event for SAP since it recently merged North America and Latin America into a single unit under the direction of Rodolpho Cardenuto, President SAP Americas. This merging of the Americas bucks the trend in the industry. As Latin American economies, most particularly Brazil, continue to emerge, it is more likely for Latin America to be spun off from a previously combined unit.

And the combination of the two Americas has a further bit of a unique twist. Typically North America will be the dominant player, and therefore you might expect it to bring its southern neighbors into the fold. Yet at the Summit, it really felt more like Latin America was taking North America under its wing. Presumably this is largely based on the recent successful growth of Latin America under Mr. Cardenuto’s direction.

Over the course of two days we heard lots from SAP executives on the main stage, in smaller groups and one-on-one meetings. Some of what we heard simply reinforced the four pillars we have been hearing about quite consistently at various events over the past year or more, namely how SAP intends to:

  • Leverage the core business applications
  • Deliver in mobile
  • Lead in the cloud
  • Capitalize on big data (read: HANA, HANA, HANA)

But how do these key elements of SAP’s strategy pertain to the partners and the customers they serve?

Leveraging the core business applications

The key message here: industries are important and partners are critical to building out solutions. There will be common processes across all companies. These common processes are easily handled by basic functionality that has become quite commoditized today, making it hard for any software company to differentiate itself solely on the basics. It is equally hard for any customer running “just the basics” to gain a competitive edge.

SAP’s approach to delivering that source of differentiation is to co-innovate with partners and customers. First of all, SAP constructs specific “value maps” for each of 25 different industries, identifying market trends and specific business capabilities required to compete in these markets. It then creates very unique blocks of solutions for each industry.  The goal is to not just deliver technology, but to create more value for its customers, and therefore SAP is taking a design thinking approach. This has been music to my ears, which are tuned more to business issues than pure technology. I spend much of my time and efforts translating techno-speak to business-speak.

Design thinking is becoming more and more popular these days, but in case you are not familiar with the concept, it is a repeatable process for solving problems and discovering new opportunities. It consists of 4 key elements:

  1. 1.    Define the problem
  2. Create and consider many different options
  3. Refine selected directions
    Repeat steps 2 and 3 until you reach…
  4. Pick the winner; execute

As the pace of change accelerates, as technology allows us to solve problems previously deemed unsolvable, SAP understands it can’t possibly deliver all this value itself, and therefore turns to partners. As Chakib Bouhdary, EVP Industry Solutions and Customer Value stated on stage, “We all have to change our tolerance to IP sharing.” This is an important concept and one critical to encouraging partners to develop complementary solutions, along with a go to market plan that includes revenue sharing.

At first glance this “sharing” of IP and revenue might seem to pertain only to the traditional Value Added Reseller (VAR) or the larger service providers/system integrators. But during the Summit SAP also introduced the SAP PartnerEdge program for Application Development, “a simple and comprehensive program designed to empower partners to build, market and sell software applications on top of market-leading technology platforms from SAP.

How is this new and different? Essentially it lowers the cost of entry for small partners, while also simplifying the process of signing up. Partners can choose from a set of “innovation packs” based on the latest platform technologies from SAP, including the SAP HANA platform, SAP HANA Cloud Platform, SAP Mobile Platform, SAP databases and the SAP NetWeaver platform. The innovation packs contain technology-specific license rights, resources and services to help partners rapidly get enabled to develop applications on SAP platforms. The packs are also designed to support custom development for co-innovation with customers, which often is the first step to developing a more commercial, standard application. All for an entry fee of around 2500 euros.

These small partners pay a low annual fee (500 to 1500 euros per year) for each of these innovation packs. In turn they can also offer their wares through the SAP online app store and potentially reach a much broader market and therefore better monetize their efforts. This encourages a larger volume of smaller partners in a very real “win-win” scenario.

Deliver in Mobile

Notice the SAP Mobile Platform is included above as one of the innovation packs. The consumerization of IT has changed expectations of connectivity and accessibility of data. But nobody (in their right mind) really wants to lift and shift the traditional ERP user interface to a mobile device. Mobile executives today want answers to specific questions, hence the increase in demand for more purpose-built mobile apps. Lots of questions potentially generate the need for lots of mobile apps. And the SAP online app store is the perfect place for partners to showcase those they build on SAP’s mobile platform.

Lead in the Cloud

It seems everyone today wants to claim “leadership” in the cloud and SAP is no exception. With all the “mine is bigger than yours” rhetoric in the market today, determining who is on top is difficult and probably a bit subjective. However, after developing its own “born in the cloud” (SaaS only) business management suite (Business ByDesign), two major “cloud only” acquisitions (SuccessFactors and Ariba), 30 million users in the public cloud and the world’s largest business network supporting $460 billion in transactions, SAP has to be right up there on the leader board.

While there is still a lot of confusion over cloud and SaaS, the interest in both has taken a quantum leap over the past couple of years. I’ve written a lot about the benefits of moving to the cloud, but while others predict that very soon the vast majority of applications will be running in the cloud, my research indicates only 33% will be SaaS in 5 to 10 years. I attribute this to the fact that there are so many solutions running on-premise today and many companies are reluctant to rip and replace only to convert to a SaaS deployment model. So does that limit the number of companies that can effectively leverage the benefit of the cloud to those willing to abandon their current software licenses? SAP says, “No.”

Many of the companies running on-premise solutions would love to relinquish the responsibility of managing and maintaining those solutions and reap the benefits of the cloud. SAP’s answer to this is to offer Managed Cloud as a Service (MCaaS). This isn’t a brand new concept. Back in May, SAP announced its SAP HANA Enterprise Cloud. As I wrote back in May…

On May 7, 2013 SAP announced SAP HANA Enterprise Cloud. As the name implies, it is a cloud-based service that allows an organization to move existing (or new) implementations of the SAP Business Suite and SAP NetWeaver Business Warehouse, powered by HANA, off their own servers and into SAP’s massive data centers. Why would an enterprise want to do this? The short answer: Speed, power and the benefits of cloud computing without the disruption of replacing existing on-premise solutions. Speed and power come from HANA, adding visibility and agility to the business by enabling decisions to be made in real-time with volumes of data that were inconceivable just a short time ago. Cloud computing lowers cost and adds elasticity, allowing capacity to stretch as your business and your need for data grows.

This is not SaaS and is not a public cloud. It is really a private cloud for the customer managed by SAP. This was a purposeful decision on SAP’s part since the objective is to make the solution truly “elastic.” While this term may be common in technology circles, it is less so in the business community. Essentially, it means the customer is never constrained by hardware limitations. Data center configurations expand (transparently to the customer) as more computing power is required. And if there are any lingering concerns about applications running in a public cloud, those go away with this model.

So what does this mean for partners and how is MCaaS different? It means they can bring the benefits of the cloud to those not quite ready for a SaaS solution. Partners can purchase product licenses and offer them, along with other services on a subscription basis. While this is the same concept introduced with the HANA Enterprise Cloud, HANA is not a requirement, nor is the Business Suite. SAP may be hosting the software, but partners may also sign up to do the same. SAP Business One and Business All-in-One are already offered in this kind of hosting model by several of the larger partners.

Capitalize on Big Data (HANA, HANA, HANA)

This was the first SAP event I have attended in a long while where HANA was not the primary focus. Yet its presence was certainly implied, if not directly referenced. Steve Lucas, President, SAP Platform Solutions talked a lot about “the real time connected enterprise:”

  • Real time business applications
  • With real time integrated analytics
  • Delivered on any device in real time (securely anywhere in the world)

Of course you need HANA for this. But I think the real message for the partners here is that SAP needs them to deliver applications that leverage HANA. This makes Dr. Bhoudary’s comment about SAP’s tolerance to IP sharing even more relevant beyond the concept of building out industry solutions. I’ve said it before and I’ll say it again (and again and again if necessary)…Without this way of thinking, without the development of applications leveraging its technology, HANA is simply an elegant technical solution in search of a problem. And as Steve Lucas said, “No one wakes up in the morning and says, ‘I really want to install HANA.’ They wake up with problems to solve…. Partners make it real.”

 

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Loosely Coupled or Tightly Integrated Enterprise Applications? Why Should a CFO Care?

It seems lately I have been hearing a lot about “loosely coupled” business applications. It started about a year ago at Infor’s customer event (Inforum) and then continued at SAP’s SapphireNow. More recently, with SAP’s introduction of Financials OnDemand, I heard it again. Financials OnDemand is a derivative of SAP Business ByDesign, a cloud-based, tightly integrated suite (that some might call ERP). SAP pulled out the financials that were previously embedded in Business ByDesign so they could stand on their own and be “loosely coupled” to other applications.

But is this what its customers and prospects are looking for? That’s hard to say because it is very unlikely its typical prospect or customer really understands the intended “benefits” of loosely coupled.  In fact, when you start talking about “loosely coupled” to CFOs you are likely to produce that glazed look that says, “I don’t know what you’re talking about… and I don’t really care.” If you refer to “loosely coupled” in contrast to “tightly integrated” you might get a glimmer of understanding, but not an immediate acceptance of the concept.

CFOs might intuitively understand the value gained from tightly integrated applications, particularly in reference to an integrated suite of modules like ERP. After all, who wouldn’t want a complete solution, one where all the pieces just sort of fit and work together, with no integration effort required and no redundant data? While there might be some inherent value to having a loosely coupled solution, that value is not intuitively obvious to a CFO. Yet the opposite is true for both Infor’s CEO Charles Phillips and representatives of SAP, including former SuccessFactor CEO, now SAP’s chief “cloud” guy, Lars Dalgaard. They see enormous value in loosely coupled. As a result they either don’t see a need to explain it, or they have difficulty in explaining something they just intuitively “get.” Either way, the message is just not very clear to your typical financial executive.

So let me try to explain. The biggest reason “loosely coupled” might be of very significant value to a CFO is because things change. Markets change. Companies expand (or shrink). Software is enhanced. Technology innovation happens.  In fact, technology innovation often results from change but is also often the catalyst for change. Yet responding to change is hard.

Let me give you an example that should resonate with a CFO. Let’s say you are the CFO of a mid-size manufacturer who has helped your company expand over the past 10 years.  You implemented an ERP solution back when you were small and your accounting needs were rudimentary. You chose a solution for its strength in managing inventory and production. While you started out operating from a single location, you have expanded globally and now operate in 6 different countries around the world. While the financial modules of your ERP met your needs when you first implemented it, now you struggle with compliance and tax regulations, multiple legal entities, multiple currencies and consolidation. This is a very real scenario. Our latest Mint Jutras survey on ERP indicates 75% of companies today operate with more than one location. Even small companies (those with annual revenues less than $25 million) have an average of 2.6 locations and this average grows to 7.5 in the upper mid-market (revenues from $250 million to $1 billion).

You’d like to move to a newer, more feature-rich accounting solution, but your ERP is still satisfying the needs of manufacturing and since you are continuing to grow, you don’t want to disrupt the business by ripping it out and replacing it. The very thing that attracted you to your solution is now holding you back. Because it is tightly integrated, you can’t just replace a piece of the puzzle without replacing the whole thing.

To make matters worse, your older ERP solution is not really meeting your needs for customer relationship management (CRM). This is not surprising. While the footprint of ERP has been steadily expanding over the past 10 years, the needs of sales and service organizations were not front and center from the beginning. If these needs had been met with early versions of ERP, companies like Salesforce.com would never have taken off like they have. Maybe you too are considering adding a stand-alone CRM to the mix. If so, SAP might be pitching its Customer OnDemand solution in addition to Financials OnDemand.

So is this building a case against tightly integrated, in favor of stand-alone solutions that might need to be integrated? Not necessarily. In a tightly integrated solution there is only one of anything – one chart of accounts, one customer master file, one item master, one supplier master, etc. But these master files are shared across different functions. Purchasing needs to access the supplier master to place a purchase order. But accounts payable also needs a supplier master in order to make a payment. Sales and order management need to maintain information in the customer master, but accounts receivable needs a customer master to apply cash receipts. Pull the accounting solution out and you still need the suppliers and customers. Does the new accounting solution have its own supplier and customer files? Does this mean maintaining two of each? Does the new CRM add yet another customer master? If so, how do you keep them in sync? Or maybe you don’t. But this adds all sorts of new wrinkles.

“Loosely coupled” applications could very well make your life easier. But what’s the difference between “loosely coupled” and what used to be called “best of breed?” This is where it gets harder to explain and I am not entirely convinced all vendors that claim to deliver it are talking about exactly the same thing. It took SAP several tries before I really saw the difference, and I live and breath this stuff. Your typical CFO doesn’t.

In trying to understand SAP’s definition of “loosely coupled” I described the scenario above to the solution marketing team for SAP’s cloud-based financials and asked how the combination of Financial OnDemand and Customer OnDemand would address this issue of redundancy. If each were sold separately (i.e. not delivered as the integrated suite of Business ByDesign) would the customer wind up with two different customer master files? SAP’s answer was no.

Here’s how it works: Think of the customer (master data) as a business object. An older ERP solution will build that customer master file (the business object) right into the solution. Instead, these OnDemand solutions treat the customer master as a separate business object that lives outside of the application. By doing this, both applications can point to, access and reference the same business object.

But what about maintenance? Instead of building the maintenance functions directly into each application, SAP treats that function as a separate function as well. Instead of building that directly into Financials OnDemand and Customer OnDemand, SAP builds it once and puts it in a “business process library” which both (and other) applications can use. The term “business process library” might be a bit confusing because most think of business processes in the context of processes like “order-to-cash” or “procure-to-pay” or “plan-source-make-deliver”. These are workflows that string together different functions. But in this case the business process is much more granular. It refers to the process of maintaining the customer master data.

So by loosely coupling these two applications, the customer still winds up with one customer master file. And both applications use the exact same functions to access and maintain it. These external business objects sort of plug into these applications.

This solves an important problem, but in our scenario, where we are replacing the accounting applications of an existing ERP solution, it is only half of the problem. If that existing ERP is still managing customer orders, it too needs to access the customer master file and it probably assumes the customer master file is the one that is delivered embedded in the ERP. So until or unless you do some potentially invasive surgery to the existing ERP, you are going to have to deal with some redundancy of data.

Of course if you replace that tightly integrated ERP solution with a newer or upgraded solution that has been assembled with loosely coupled external business objects, this problem goes away. In the meantime, SAP, and potentially other solution providers are beginning to re-architect their solutions to make this much easier. They are essentially performing this surgery and delivering applications that make better use of underlying supporting technology to make this happen. Remember the $6 million man and the bionic woman? They were still people, but with some of their “parts” significantly enhanced. Think of it as bionic ERP.

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SAP Business Suite on HANA: Software that Reinvents Business. Reinvented.

Really? Yes, Really!

On January 10, 2013 SAP announced the availability of SAP Business Suite powered by SAP HANA, a new option for SAP Business Suite customers and an opportunity for SAP to deliver “transformative innovation without disruption.” That’s a mouthful, but one that has the employees at SAP super excited. While the announcement was well-received and the audience seemed to like what it heard, this group of IT influencers didn’t seem to exhibit that same level of excitement. But influencers can be a jaded bunch. All too often as you start to dig deeper you find the story just isn’t all that new or different. In this case I believe the tables will be turned. As influencers and SAP customers alike begin to explore and understand the new and very real possibilities, what first appeared to be just “interesting” will truly become exciting. And there is no limit to those opportunities to innovate.

The HANA Story: What It Means to Business

Part of the reluctance to “feel the excitement” might stem from the fact that we’ve been hearing about HANA for a few years now. Six years ago Hasso Plattner, cofounder of SAP and Chairman of its Supervisory Board, had a vision of what the system of the future would look like. That vision included:

  • All active data must be in memory. In Hasso’s words, he wanted to “get rid of the rusty spinning disk.”
  • Full exploitation of massively parallel processing (MPP) in order to efficiently support more users
  • The same database used for online transaction processing (OLTP) and analytics, eliminating the need for a data warehouse as a reporting tool for OLTP to support live conversations rather than “prefabricated briefing books”
  • Radically simplified data models
  • Aggressive use of math
  • Use of design thinking throughout the model

But such a vision obviously took time to deliver, so for the first few years the world heard about this transformative technology, but couldn’t touch, feel or see it. In 2011 we started to see some results as HANA for analytics became a reality and pioneering companies began to see performance improvements previously unheard of in terms of speed and the ability to handle massive volumes of data.

In 2012 it became real as SAP released HANA as a platform for developers. But the vision was still one of powerful technology and much of the talk over the past six years has been presented in very technical terms. “Here is this super technology; let’s work together to find ways to use it.” That’s not necessarily how business executives and non-technical decision-makers think. Instead they think in terms of business problems. “I have this problem. How are you going to help me solve it?”

While the ability to “support live conversations” and efficiently “handle more users” might resonate with a business executive, these messages were often over-shadowed. Business executives don’t necessarily perceive the value of eliminating disks, simplifying data models or using math. They don’t know what MPP is or design thinking.

So now, with this announcement, SAP is trying hard to change the conversation to be less about the technology and more about the business value.  What is the real value? In the words of one early adopter: HANA solves problems that were deemed unsolvable in the past.

It is in uncovering these types of solvable business problems that the excitement will build. As Dr. Vishal Sikka, member of the SAP Executive Board, Technology and Innovation said, “Now the software at the heart of thousands of the world’s best-run companies can work and think as fast as our imagination.” But many business executives simply don’t have the same kind of creative imagination as a Vishal Sikka or a Hasso Plattner.

SAP Business Suite might be reinvented on HANA but how does that help customers reinvent their businesses? The trick will be in unleashing their imaginations and helping them see the possibilities. Yet in its attempt to make the message universal and relevant at the highest levels of its customers’ organizations SAP often introduces a level of abstraction that is lost on its audience. So we need to translate some of these high level messages into something that might be a little more concrete.

Becoming a real-time business

SAP’s brochure says, “Becoming a real-time business requires managing daily business transactions of your core business processes in real time, such as finance, sales and production – and as well, to capture data from new sources like social media, mobile apps or machine sensors.” However, how many enterprises today have a stated goal of “becoming a real-time business?” They don’t. They have goals such as growing revenue or reducing costs to improve profits. They may or may not be able to connect the dots between those goals and collecting and analyzing data in real time.

For those dealing directly, or even one step removed from an actual consumer or consumer product, the value of data from social media and/or mobile apps might be intuitive. For these companies, their brand is of paramount importance and they take great risk in ignoring social media or opportunities to connect directly with potential customers through mobile devices. So adding this dimension to the decision-making process should be well-received once you get the customer to think in those terms.

For manufacturers of industrial products… not so much. The world is changing, but slowly. It is entirely possible for them to think “social” isn’t business; it is something someone does on their personal time. And mobile devices are what their kids use to text their friends, play games and listen to music. For those same manufacturers, machine sensors and automated data collection (ADC) devices may have been on shop floors for many years. Those sensors and devices may in fact have the ability to shut down a line of production before bad product is produced. But can the data be effectively analyzed in order to improve products and processes? It is very possible that vast quantities of collected data have been underutilized for years, for one simple reason – there is just too much of it. And because it is collected continuously and automatically, it is constantly in a state of flux.

That thought actually brings to mind a parallel in history that dates back to the 1970’s.

Will HANA Bring to IT what MRP brought to Manufacturing?

The business world hasn’t seen something with this kind of potential impact emerge on the market since the introduction of MRP in the 1970’s. Those outside of the world of manufacturing might not appreciate the real significance MRP had, but there are a lot of parallels between the potential for HANA and the automation of the planning process that MRP brought about.

In a nutshell, MRP (material requirements planning) takes a combination of actual and forecasted demand and cascades it through bills of material, netting exploded demand against existing inventory and planned receipts. The result is a plan that includes the release of purchase orders and shop orders and reschedule messages. While the concept might be simple enough, these bills of material could be many layers deep and encompass hundreds or even thousands of component parts and subassemblies. Without automated MRP there is simply too much data and complexity for a human to possibly work with.

As a result, prior to MRP, other ways of managing inventory became commonplace. You had simple reorder points. Once inventory got below a certain point, you bought some more, whether you actually needed it or not. You also had safety stock as a buffer, and the “two bin” system was quite prevalent. When one bin was empty, you switched to the other and ordered more. These simplistic methods may have been effective in some environments, but the net result was the risk of inflated inventory while still experiencing stock outs. You had lots of inventory, just not what the customer wanted, when it wanted it. And planners and schedulers still had to figure out when to start production and they knew enough to build a lot of slack time into the schedule. So lead times also became inflated and customer request dates were in jeopardy.

Once MRP entered the picture, these were seen as archaic and imprecise planning methods. Even so, most didn’t rush right out and invest in MRP when it was first introduced. In fact now, decades later, the adoption rates of MRP in manufacturing still sits at about 78%. Why? The existing practices were deemed “good enough” and, after all, that’s the way it had always been done.

It required a paradigm shift to understand the potential of MRP and the planning process executed by MRP was complex. Not everyone intuitively understood it. And if they didn’t really understand, planners were unwilling to relinquish control.

Yet over time, MRP brought a new dimension to material planning. It brought a level of accuracy previously unheard of and helped get inventory and lead times in check. Manufacturers can experience an average of 10% to 20% reduction in inventory and similar improvements in complete and on-time delivery as a result of implementing MRP.

Now with HANA we’re introducing the potential to improve processes, not by 10% to 20% but by several orders of magnitude. But it also requires a paradigm shift.

Manufacturers, as well as other types of companies, are quite accustomed to making decisions from a snapshot of data, usually in report format, possibly through spreadsheets. They have become desensitized to the fact that this snapshot is just that, a picture of the data, frozen in time.

What if you never had to run another report? Instead, whenever you needed a piece of data or an answer to a question, you had immediate and direct access, not to the data as it was at the beginning of the day, or the end of last week, but to the latest data in real time? That’s what Hasso envisions when he talks about “live conversations versus prefabricated briefing books.” But those used to making decisions from those briefing books need to be educated on the possibility of the live conversation.

And, oh, by the way, traditional MRP, a game changer in the 1970’s and 1980’s is in for a major transformation.  Early MRP, and even versions of MRP today took and still take a long time to run and need exclusive use of the data. So it is typically run overnight or over a weekend. Think of the possibilities if it could now run in minutes or even seconds. Is that possible? With HANA, yes.

“Transformative Innovation Without Disruption”

In his opening remarks Hasso introduced the concept of “transformative innovation without disruption.”  In fact innovation was a key driver for John Deere, the early adopter of HANA mentioned previously in the context of solving previously unsolvable problems. Derek Dyer, director, Global SAP Services, Deere and Company outlined three ways in which the company views HANA as a game changer:

  • Bringing new innovation to the business by solving problems deemed unsolvable in the past
  • Simplification of the IT stack while introducing the ability to deal with huge volumes of data
  • Better serving the business by providing real-time access to data for better decisions

John Deere was originally attracted to HANA based on the performance aspects of the platform. The “Wow!” it was seeking was speed. It has had some initial success with its early projects, but sees a new world with ERP now on HANA. It intends to transform itself from a manufacturing company to a solutions based business. An example: It plans to take data from sensors in equipment in the field, determine how the equipment is being used, under what conditions. Not only will the data be real-time, but it will also allow them to answer back to the customer with very personalized, specific answers, and also support better collaboration with suppliers, dealers and customers.

Seeking Innovation

John Deere and other early adopters can provide some examples and perhaps some motivation, but each company will have to discover its own possibilities for changing the game. This is where SAP’s reference to “design thinking” comes into play. It is a protocol for discovering new opportunities and for solving problems.  It starts out with defining the problem. Because these problems might, as John Deere points out, have been previously deemed unsolvable, this step might not be as simple as it sounds. But it is the first critical step in finding that “excitement.” It can also be the most difficult. SAP and its partners can help.

What about Disruption?

The very term “disruption” is a source of controversy these days. Many talk about “disruptive technology” and refer to it as a good thing. But there are different kinds of disruption. A new technology that disrupts the way you think about problems and processes can have a very positive influence. But when new software (for example a new release of ERP) disrupts your business because you can’t ship a product or support your customer, it is definitely a bad thing. Upgrades to software like the SAP Business Suite are often viewed as disruptive in the bad sense, rather than in a good way. This is the kind of disruption SAP is promising to avoid.

Customers can take advantage of the Business Suite on HANA without upgrading their existing Business Suite. Current reports and customizations are preserved, including integration with other applications. And even partial migrations are possible. And there is no forced march now or in the future. SAP remains committed to supporting the customer’s choice of databases, including database technology and vendors. So the choice is left to the customer.

Yes, there is a cost associated with moving the Business Suite to HANA, but pricing for the new database works similarly to pricing for other databases even though the customer will experience huge improvements in speed, including 10 to 1000 times faster analytics.

Key TakeAways

It is clear that a key value proposition for SAP HANA is speed, but the vast possibility for business innovation trumps the value gained for improved performance. But each SAP Business Suite customer will have to identify its own possibilities for innovation. For some these opportunities for innovation may be staring them in the face. Others will have to dig deep into existing processes and identify those problems they have been living with for so long that they might appear to be unsolvable. Once uncovered, ask the very real question, “Can I solve this problem today with HANA?”

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Plex Systems gets a new CEO

I had a chance to talk to Jason Blessing, Plex System’s new CEO yesterday. I’ve worked with Plex and its former CEO Mark Symonds now for almost seven years, and have always enjoyed my interaction. Plex has come a long way through that stretch. Back in 2006, Mark was almost a one-man show. Not only did he drive product and company strategy, sales and development, but he was their chief evangelist as well. Today there is far more depth to the organization and it is also backed by two investors: Francisco Partners and Accel Partners. It is quite a tribute to Mark that he hands over a company that is poised for what could very well be explosive growth.

Jason comes to Plex after a short stint at Oracle, where he was senior vice president of application development after the acquisition of Taleo where he held a variety of executive roles. For those not familiar with Taleo, it has been a pioneer in cloud-based talent management solutions. So he certainly has the cloud credentials. But someone like me, who has grown up (professionally) in the world of ERP and manufacturing, but has also been involved with human capital management  (HCM) applications, including talent management, knows full well the difference in scope between ERP and HCM, particularly when it is ERP for manufacturing.

While those specializing only in HCM hate it when I say it, HCM is pretty intuitive. Everyone that has ever managed people understands the requirements for talent and workforce management. Anyone that has recruited talent knows what recruiting is about. We’re all human “resources” so we know about human resource data, benefits and compensation. But manufacturing is anything but intuitive. And the scope of ERP (and its role in managing the business) dwarfs that of HCM. And Plex isn’t the first ERP vendor to bring a former HCM executive in and put him in charge of something much bigger than HCM.

So Jason might have felt a little like he was on the hot seat yesterday when we spoke. And he will probably be a bit relieved to hear that what I heard yesterday was encouraging. While a lot of his background has been in HCM, including both Taleo and previously Peoplesoft, I learned he also worked as a management consultant for Price Waterhouse. And I also heard him acknowledge what he didn’t know about ERP and manufacturing, but that he was confident because the original founder of the company was still involved and he also had some great depth of expertise in the company, including Jim Shepherd, his VP of Strategy. Shep and I go back almost 30 years when we both worked for ASK Computer Systems, and our paths would cross more recently when he was an analyst with AMR, which was later acquired by Gartner. It was reassuring to hear that Jason understands the value of having someone with Shep’s depth of knowledge and vision for manufacturing.

Plex has enjoyed consistent growth over the past few years and even before the investment by Francisco partners had been self-sustaining. This is an incredible achievement in the world of SaaS solution providers, when many others far larger than Plex are still struggling to show a profit. It has one of the most active and engaged installed bases of customers in the industry. This is partly because of the close relationship between its customers and its product direction. For many years, the development organization was primarily driven by specific customer requested enhancements. Plex’s adoption of rapid application development methodologies allowed them to respond quickly and efficiently and deliver against these requests even with a multi-tenant solution.

But in order for Plex to take that next jump and grow globally into new markets, it will have to mix that strategy with more traditional product strategies to take it someplace where its existing customers won’t. Jason seems to understand this. His limited expertise in ERP and manufacturing won’t be what takes them there, but listening to his staff and using invested capital wisely very well could.

Its competitors have always underestimated Plex Systems. A word of caution to those competitors… watch out!

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Is SAP’s Cloud Strategy Like the Blind Men and the Elephant?

As I watched a Twitter conversation recently discussing SAP’s cloud strategy, I was reminded of the old story of the blind men and the elephant. While there are different versions, the upshot of the story is that each blind man “sees” something different because each is only touching one part of the elephant. Without sharing their experiences and collaborating nobody gets the full picture.

Doug Henschen, executive editor of InformationWeek, sparked the discussion with his article SAP Clings To A Dated Cloud Apps Strategy. Doug writes, “As cloud vendors Salesforce.com, NetSuite and Workday look toward larger companies, SAP courts small and midsize firms.” Doug was at the same event I attended last week, SAP’s SME Summit. So yes, the message being delivered by SAP at this event was one targeting SMEs (small to mid-size enterprises). His article mentions both SAP Business One which is available through on-premise and Software as a Service (SaaS) deployment models and SAP Business ByDesign, an exclusively SaaS offering.

However, two weeks prior to that, I also attended SapphireNow in Madrid. In a cloud strategy session there, I heard SAP Financials OnDemand, which is a derivative of SAP Business ByDesign and therefore an important element of SAP’s cloud strategy, was targeting medium to large enterprises. Does this mean the folks at SAP are not collaborating and instead are giving different and conflicting messages? I don’t think so. I think it means the same product can serve different markets and can be presented differently to different audiences.

Second question: Does this mean the target for SAP is different than the target for the likes of Workday, Salesforce.com and NetSuite? Not necessarily. Some will argue that the “large enterprise” play for Financials OnDemand is limited to subsidiaries of large enterprises.  First of all, this a similar message conveyed by many solution providers citing “2 tier ERP strategies.” But often that is the very definition of a large enterprise: a collection of smaller business units or subsidiaries. Not only do these subsidiaries roll up to corporate financials, they often must deal with the same complexities as their corporate parents.  Some deal with those issues better than others.

So in many ways, all these solution providers are attacking the same market. SAP is just coming at it from a different direction. While the solution providers noted (all of which started out as SaaS vendors targeting small and/or midsize enterprises) have been coming up-market, SAP has been moving in the opposite direction.  SAP is best known for its presence in the largest of large enterprises and nobody would argue that market is quite saturated. Real growth potential lies in the small to midmarket space. Whether one direction is any easier or more difficult than the other, the challenges are definitely different.

In coming up market, these pure SaaS vendors need to add features and functions required by large multi-national enterprises. In coming down market, SAP needs to eliminate a combination of real and perceived complexity. Indeed back in 2007 SAP admitted it started by building Business ByDesign from scratch primarily to reduce that complexity.  And yet as smaller and smaller companies began operating globally, the complexities associated with multiple currencies, multiple languages, multiple legal entities, increased regulatory compliance requirements and global trade needed to be addressed even in smaller companies. The upstarts had the advantage of simpler solutions to build upon and SAP had the advantage of design teams that had been routinely addressing those needs for many years, particularly in terms of finance and accounting.

In his article, Doug even mentions that, “…CEO Aneel Bhusri said Workday’s Human Capital Management apps are already capable of handling the largest companies in the world, like Hewlett-Packard and DuPont, both of which recently signed enterprisewide deals with the company. Workday’s financial apps are currently suitable for use by midsized companies, Bhusri said, but by the end of next year — after investments in cloud capacity and app resiliency to sustain high-scale transaction processing — they’ll be ready for Fortune 1,000- or even Fortune 500-sized companies.“

That’s the market where SAP made its name and asserted its dominance.

But in determining strategy, here’s the big question: What will move to the cloud and what will remain on-premise (and is SAP’s strategy well aligned to that)? Many seem to think everything will steadily progress towards cloud-based and SaaS solutions, eventually replacing all on-premise solutions. I think it will take a very long time to get there. My latest survey on “Understanding SaaS” indicates that about 17% of business applications used today are SaaS-based and in 5 to 10 years that percentage will (just about) double, with 33% projected to be operating in a SaaS deployment model.

Is that because there is reluctance to accepting the SaaS model? No. It is because there are so many on-premise solutions that would have to be replaced. ERP and accounting solutions running large enterprises today might in fact be the least likely of these to be replaced, simply because of the cost and effort expended in initially getting them implemented. While that cost and effort has steadily decreased over the past 10 years, that doesn’t change the fact that these large enterprises spent a whole lot of time and money getting them up and running and the prospect of going through that again is not too appealing.

Yet installing a new cloud-based solution for a business unit or a subsidiary that is not currently fully supported by the corporate solution may indeed be very appealing. For a large enterprise with an existing SAP solution, Financials OnDemand or even the entire Business ByDesign solution may be a very good option for a subsidiary, business unit or remote operating location. Once a large enterprise has done this one or more times and the cloud-based solutions are feeding the corporate solution, perhaps it will pave the way for a transition to a 100% cloud solution in the future. If so, which cloud based solution do you think might make the transition the easiest? Do you think SAP might have thought of this too?

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