SAP and The Online Procurement
Market
Overview of Company
 Mission and Vision
Mission statement-“Take what is good and make it better”.
Their goal and mission is to provide Enterprise Business
Solutions for sustained competitive advantage. “This statement
acts as a gauge by which we measure everything we do – how
we develop our products, how we communicate with the world,
how we present ourselves in our marketing materials, even how
we answer the phone.”
Company’s vision is to empower all employees and make difficult
easy. “By allowing them to effectively tap into and leverage the
data that resides on their SAP and non-SAP systems. SAP
believes that people like their current user experience, but want
business process context to be part of it. Company wants
business users to utilize this data to accomplish daily tasks in
more productive ways and make complex tasks simple.”- Shai
Agassi, president of the Product and Technology Group and executive board member, SAP AG
History
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SAP (Systems, Applications and Products in Data
Processing) was started in 1972 by five former IBM
engineers who wrote programs for mainframe computers
to help industrial companies control their manufacturing
process.
In 1976 “SAP GmbH” was founded and the following year
the headquarters moved to Walldorf, Germany. SAP AG
became an official company’s name after 2005 annual
general meeting.
Three decades: 1970’s, 1980’s and 1990’s.
1970’s – real-time vision. Birth of SAP R/1 system
1980’s – rapid growth. Birth of SAP R/2, which can handle
multiple languages and currencies. This leads to market
expansion to Austria and later to Italy, Danmark and
United States. Revenues reach $52 million.
History (cont’d)
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1990’s – a new approach to software and solutions. SAP
R/3 is released to market. The client-server concept,
uniform appearance of graphical interfaces, consistent use
of relational databases, and the ability to run on
computers from different vendors meets with
overwhelming approval.
By 1996, the company has earned 1,089 new SAP R/3
customers. At the end of the year, SAP R/3 has been
installed in more than 9,000 systems worldwide.
On August 3, 1998, the letters S-A-P appear for the first
time on the Big Board at the New York Stock Exchange
(NYSE), the largest stock exchange in the world.
Company’s new strategy mySAP.com links e-commerce
solutions to existing ERP applications, using state-of-theart Web technology.
SAP today
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Currently, more than 12 million users work each day
with SAP solutions. There are now 121,000 installations
worldwide, more than 1,500 SAP partners, over 25
industry-specific business solutions, and more than
41,200 customers in 120 countries. SAP is the world's
third-largest independent software vendor.
Today, with enterprise services-oriented architecture and
the underlying integration and application platform, SAP
NetWeaver, SAP is providing our customers with solutions
for end-to-end business processes. With SAP NetWeaver,
your company can integrate people, information, and
processes within the company and beyond.
Summary- Over the course of three decades, SAP has evolved
from a small, regional enterprise into a world-class international
company. Today, SAP is the global market leader in
collaborative, inter-enterprise business solutions. The company
now employs more than 39,300 people, whose commitment and
innovative spirit pace our future success.
Management team
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Executive Board
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Henning Kagermann
CEO
Areas of Responsibility: Overall responsibility for SAP's strategy and business development;
global communications; global intellectual property; internal audit; top talent management
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Léo Apotheker
Deputy CEO, Member of the SAP Executive Board and President, Global Customer Solutions &
Operations
Areas of Responsibility: Sales; consulting; education; training; marketing; field services; small
businesses and midsize companies; operations
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Werner Brandt
Chief Financial Officer
Areas of Responsibility: Finance and administration; shared services; SAP Ventures
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Claus E. Heinrich
Member of the SAP Executive Board
Areas of Responsibility: Human resources; internal information technology (IT); SAP Labs
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Gerhard Oswald
Member of the SAP Executive Board
Areas of Responsibility: Global service and support; business process outsourcing; custom
development; managed services; ramp-up
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Peter Zencke
Member of the SAP Executive Board
Areas of Responsibility: Research; application platform
Stakeholders and Key Players
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Key Players
Hasso Plattner- Chairman of the Supervisory Board. He is
one of the founders of SAP AG. Plays huge role in company’s
success. Media reports have named him one of Germany's most
important private sponsors of scientific research.
Henning Kagermann – main stakeholder and key player.
He is a cofounder of SAP AG and a CEO of a company.
Kagermann has overall responsibility for SAP's strategy, business
development and also oversees the areas of global
communications, global intellectual property, internal audit, and
top talent management. Kagermann is currently a member of
the supervisory boards of Deutsche Bank AG and Münchener
Rückversicherungs-Gesellschaft AG (Munich Re) in Germany.
Goals and strategy
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One is to continue expanding its offerings beyond ERP by
developing enterprise software for the fast-growing
customer relationship management (CRM) and supply
chain management (SCM) markets, an initiative that the
company first conceived in 1996 but had been slow to act
on.
Second is to recast its entire product line with unified
Internet focus.
Third, SAP has decided to enter the market for electroniccommerce software and services, including the creation
and management of online trading communities. This
representing a far-reaching departure from its traditional
ERP business.
The major goal of SAP’s new e-commerce strategy was
the market for online procurement software and servicestools that enabled companies to automate and manage
their purchases of “operating resources”.
Strategies (cont’d)
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Fourth is to expand the company’s product line beyond
ERP systems into customer relationship management,
supply chain management and procurement. Company
recognized the need of opportunities that the Internet
presented. mySAP.com launched to provide a unifying
framework for SAP’s entire range of products and services
under company’s new focus on the Internet.
Industry and Market
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Internet and World Wide Web opened new markets
Internet restructured industries and supply chains.
B2B commerce transacted electronically will grow from
3% to 42% according to Jupiter projections. Boston
Consulting Group study expects a growth from $1.2
trillion to $4.8 trillion between 2000 and 2004.
Before an ERP system could go online, its variuos
components needed repeated testing and debugging,
which slowed down the entrance into online market.
ERP software market exploded from worldwide sales of
$2.1 billion in 1993 to $16.6 billion in 1998- a compound
annual growth rate of 51.2%.
Competition of ASPs (Application Software Providers) and
ERP vendors
Biggest competitor- giant corporation Oracle.
E-Commerce opportunities
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Entrepreneurs realized that Web technology could
automate OR procurement. The Web browser provided an
easy-to-use way for any employee to make a transaction.
Web created infrastructure for digital marketplace with
easy access to products from multiple suppliers.
With an affordable, easy-to-use technology now available,
companies could reduce procurement costs and use the
savings to improve their bottom line.
5% savings from automated procurement could bump
profits by 28%.
Online-procurement produced savings in four ways:
First, they eliminated manual, paper-based procedures.
Second, by reducing maverick buying, companies could
eliminate the 17%-27% premium they paid on one-third
of their purchases.
E-commerce opportunities
(Cont’d)
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Third, automation reduced the order-to-receipt cycle time
and improved productivity.
Fourth, with less effort spent processing forms manually,
purchasing personnel could devote more time to building
relationships with suppliers and negotiating better
contracts.
According to study by Deloitte Consulting, companies
averaged 300% returns on their investments in onlineprocurement system, over the first two to three years of
deployment.
The average implementation cost was between $2 and $4
million, and firms shaved about 9% from their annual
procurement costs in their first two years of use.
E-Commerce initiatives
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SAP’s entry to online-procurement market started with the
launch of Business-to-Business Procurement (B2BP)
application, as part of New Dimension initiative.
SAP launched mySAP.com Marketplace, which gave it a
platform to develop an e-commerce network.
Customers could use B2BP to transact purchases over
mySAP.com Marketplace. It incorporated functions to
automate purchasing- such as, catalog search,
requisitions, approval, purchase order generation.
It was most aggressive bid to enter e-commerce market.
R/3 software had more than 10 million users in thousands
or organizations around the world- a customer base that
employed approximately 100 million workers.
Many of the world’s largest buyers and sellers of
commercial goods and services already used R/3 software
for their order processing and fulfillment.
Perspective analysis
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This case address three perspectives- Technological
Drivers of Change, Economics of Internet-Based
Commerce and Creating and Capturing Value in the
Supply Chain.
Technological drivers of change- SAP was driven its new
strategies and goals by the need to find new sources of
growth and technological development was “perfect fit”.
Economics of Internet-Based Commerce- SAP realized
that entering new online market will reduce procurement
costs and savings could bump profits. Online-procurement
also reduced the order-to-receipt cycle time and improved
productivity.
Creating and Capturing Value in the Supply Chain- SAP’s
new online-procurement software simplifies the whole
supply chain process so even regular employees could
make orders and manage the transactions.
Competitive risks
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SAP’s biggest competitors include such world-wide companies
like Oracle Corporation, PeopleSoft Corporation, J. D. Edwards
Company and The Baan Company.
ERP party began to wind down for three main reasons:
Maturing market- ERP installations had penetrated as much
as 50% of the potential customer base.
Companies were siphoning money from ERP budgets to
address the Y2K problem.
Explosive emergence and growth of the Internet shifted
corporate IT priorities toward e-business.
Emerging market of ASP- these firms provide companies with
various IT services on contract basis maintaining both software
and hardware systems.
Outsourcing ERP – it threatens the ERP developers as the new
ASP market opens up.
Missed opportunities
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I believe that SAP instead of competing
and changing strategies could have been
more consistent. Company should also
pay more attention at the quality of
service, stick to the main strategy and
share the market with others
competitors, instead of racing them. This
might have caused the fall of the
company in 1999, when SAP had several
glitches with its software. It hurt
company’s image and evoked mistrust.
Success or failure?
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Company’s major goal was to focus on the
Internet and E-commerce.
Market is huge and rapidly growing.
SAP changed entire company’s business plan
focusing on technology-based vision.
Nevertheless company remained sanguine about
it’s future. Despite all the struggles and
misfortunes SAP still remains the third largest
company in the world in terms of revenues.
Gardner Group predicting 7500-10000 new
digital marketplaces would arise in the next few
years and SAP will take the rightful share of that
business.
Success.
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SAP and The Online Procurement Market