SAP senior execs talk about ERP, SOA, and the demise of three-letter acronyms

By introducing SAP Business ByDesign—an SOA-based, on-demand enterprise system for midsize companies—and selling it through in-direct sales channels, SAP, the world's leading ERP vendor, says it is “singing from the same hymn sheet” as its customers. “We are innovators too,” said Henning Kagermann, CEO and chairman, at the SAP Influencers Summit recently he...


By introducing SAP Business ByDesign—an SOA-based, on-demand enterprise system for midsize companies—and selling it through in-direct sales channels, SAP , the world's leading ERP vendor, says it is “singing from the same hymn sheet” as its customers.

“We are innovators too,” said Henning Kagermann, CEO and chairman, at the SAP Influencers Summit recently held in Boston, “by introducing the disruptive business model of ByDesign even as we introduce in parallel 'SOA by evolution' for SAP Business Suite, the market leader. Those in the investment community say no one else has ever done this before.”

Henning Kagermann, chairman and CEO, SAP, says in moving users to service-oriented architecture in two ways, SAP is ensuring its continuing relevance within the software industry.

The benefits of developing, implementing, extending, and maintaining enterprise systems based on SOA (service-oriented architecture)—even as SAP protects customers' prior investments and its own market position—and culminating in something called “business network transformation,” was the theme of the event.

For one, Kagermann said, SAP's disciplined approach to SOA allows “the industrialization of software development and deployment,” with highlights including the following:

  • A model-based, graphic development environment for configuring SAP Business ByDesign. Presented with a “wiring diagram” of common business processes codified in granular services, users simply choose those that pertain. Users also specify what ones execute in-house and what ones are outsourced.

  • For SAP Business Suite ERP 6.0 and beyond, expensive system upgrades are replaced by enhancement packages that work much like service packs, with nondisruptive installation and testing.

  • Across platforms, for its user interface, SAP believes it has now struck the right balance between standardization and personalization. One look and feel, independent of client type, will be balanced by a composition environment to support new requirements and employee creativity.

Other topics addressed at the summit included the progress of SAP NetWeaver, its middleware product central to SOA success; and the future of its “business user” development efforts in light of the recent Business Objects acquisition.

Industrializing software

If “making” software is to be compared to the manufacture of other type goods, the software industry today perhaps most closely resembles the automotive industry in the period after Ford Motor Company 's initial success in applying mass-production techniques to manufacture of the Model T.

In the years that followed, according to Paths of Innovation: Technological Change in 20th Century America, by David C. Mowery and Nathan Rosenberg, the higher capital costs of mass-production techniques and frequent model changes of the 1920s were associated with a sharp contraction in the number of producers.

Subsequently, in the mid-1920s, General Motors applied many Ford production methods “to the manufacture of common components that spanned a broader product line that could accommodate annual design changes,” say Mowery and Rosenberg.

The enterprise software industry has in recent years rapidly consolidated. Many of the remaining vendors have multiple product lines that must be rationalized. Moreover, besides moving to SOA, the industry is changing based on the “SaaS” or “on-demand” delivery model in which a vendor hosts and operates a Web-native software application, either itself or through a third-party.

By introducing Business ByDesign and moving to a platform-based approach across product lines, SAP is seeking to avoid being over taken by a nimbler competitor emerging from the technology paradigm shift.

Distribution models

While exuding confidence in its technology, SAP executives admitted to still feeling their way when it comes eliminating the high cost of direct sales efforts.

Vendors already sell enterprise software to midsize companies through indirect sales channels, but SAP claims no one has ever sold “on-demand” enterprise software that way. In setting up this sales channel, which today has 22 partners and will eventually have around 1,000, Kagermann said, “We aren't looking for consultants or systems integrators at this point. We don't want to partner with ByDesign to the point where it drives up costs.”

According to Hans-Peter Klaey, president SME, SAP, “We want partners of volume, not volumes of partners. The ByDesign sales model is different because it's an on-demand solution. The partners currently are “shadowing” SAP in its efforts, before taking over as the way becomes increasingly clear.”

Says Doug Merritt, an SAP corporate officer and head of business user development, “It's easier to say what this business user group is not, than what it is, but basically managed within this group are all the applications involving tacit or non-repetitive dealings within networks and communities.”

The two clusters within the group are 1) governance, risk, and compliance, and 2) business planning and consolidation. The applications that come with the Business Objects acquisition are grouped here. Because its much-vaunted tool set works cross-platform, Business Objects will be run as a separate division, but with the transaction not yet closed, much remains to be decided or disclosed here.

Finally, Peter Graf, EVP, marketing, SAP, pointed out at the event that “what users are really interested in is competing through innovation.” Once the SOA business transformation is complete, he added, “We'll see business processes for what they really are, and move away from all these misleading three-letter acronyms.

Overheard at the SAP Influencer Summit

SAP steers clear of further plant-floor entanglement

Asked about the significance for plant floors of SAP 's acquisition of Lighthammer several years ago, and Siemens ' more recent and much larger acquisition of PLM vendor UGS, Henning Kagermann, CEO and chairman, SAP, speaking at the SAP Influencer Summit held in Boston, said, “There is a degree of overlap on plant floors, with enterprise vendors moving down and automation vendors moving up, meeting at the MES [manufacturing execution system] level. It will be something of a battlefield. For senior managers at SAP, we've told our [line of business] managers not to be too aggressive here. There is room for these other players.”

Comparing and contrasting middleware vendors

When asked to compare and contrast the approaches of the major middleware vendors, Klaus Kreplin, corporate officer and head of NetWeaver technology, SAP, replied, “Our genome is the business process: Microsoft is user-centric; IBM is services-centric; and BEA comes from the development side. I have an opinion about Oracle, but it's changing and I won't share it.”

Later at the event, however, CEO and Chairman Henning Kagermann said, “Oracle is consolidating the past. We're innovating the future. We've gained six points in market share the last three years on our largest competitor. That's the reality of it.”

On the industrialization of software development

If you look at the efficiency of software development compared to hardware manufacture, said Henning Kagermann, SAP chairman and CEO, “It's not really keeping up. For hardware, productivity doubles every year. For software, it's every six or seven years. We'd like to get that up to three years. With model-based development, you're more closely linked to the end user so you can identify the range of requirements earlier in the process, with greater confidence and with less iteration. It's less likely that you'll introduce a prototype that includes serious flaws.”

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