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Information Technology: Software
Can SAP Swim with the Swiftest?
The battered software giant needs to catch up with the Americans. But it's hauling a lot of history
Hasso Plattner was feeling the heat. At an SAP users conference in Berlin in May, analysts and customers were pressing the co-CEO of Europe's biggest software company for hints that the slow-moving giant would take a bold step to catch up to U.S. rivals on the Web. Plattner, looking grim and jet-lagged, had little to give them. At one point he showed his frustration by admitting: "I don't know what we're doing wrong." Just weeks later, though, at a Las Vegas convention on June 14, a rejuvenated Plattner took to the stage. The cause: a fresh-cut deal with Net software hotshot Commerce One Inc., until now a rival, to combine forces and build business-to-business marketplaces on the Web.
Plattner is betting that his Commerce One deal could be the beginning of a turnaround for SAP's battered image. SAP will buy $250 million of Commerce One stock, nearly 3% of the company. In exchange, SAP will sell to its own customers the Net startup's suite of e-marketplace software. The two also will create a jointly branded marketplace site--for the first time making SAP a player in an arena that's expected to grow from $124 million last year to $1.45 billion two years from now.
The deal gives SAP a sorely needed boost, yet it's just one piece of Plattner's grand plan to transform the company from a Web also-ran into one of the dominant players in the Net software realm. He starts off with imposing strength. The $4.9 billion SAP, the world leader in so-called enterprise resource systems, supplies the software that runs the internal operations of 13,000 companies--from finance to managing inventories. The next steps are to build links from the inside of these companies to the emerging e-marketplaces, tying together suppliers and customers so they can do speedy transactions online.
The Commerce One deal couldn't have come at a better time for Plattner. SAP is in the midst of a full-blown crisis of confidence. Not only has it been left out of a flurry of e-marketplace deals that drove the stock market values of a handful of software companies into the stratosphere, but Commerce One has been winning over SAP's long-time customers, including Daimler-Chrysler. Discouraged SAP salespeople have been defecting--with more than 20% turnover in some sales offices. And the stock has plunged 50% since March.SPEED. The crux of the problem has been speed. In the millisecond Net-speed era, Plattner's company, both structure and product, is panting to catch up--and not only to Commerce One. A slew of swift, new Web companies, such as Ariba Inc. and i2 Technologies Inc., have been darting between SAP and its customers. And archrival Oracle Corp. has been growing faster in SAP's core markets. If SAP can't change its lumbering ways, Oracle could overtake it as the No. 1 seller of corporate applications, and several upstarts could grow into giants. And SAP? It could be left in the slow-growth markets.
The Commerce One deal helps staunch the bleeding. But for SAP to make good on its ambition to become a Net heavyweight, the company must undergo a corporate culture transformation. Today, important decisions, even in Silicon Valley, must often travel nine time zones to the east, where they confront the German command structure. No advertisement, for example, can run on the mySAP.com Web site, colleagues say, until Plattner vets it for size, color, and placement on the screen. "People have great ideas, but somehow down the line they're always getting stopped," says Marc Elmhorst, CEO of Impress, a German company that refits SAP programs for the Web.
Plattner is in the awkward position of being both the company's leading change agent and one of its barriers to change. He's working hard to transform plodding old SAP into a racehorse. Trouble is, in doing so, he often insists on control. This slows down decisions and keeps managers looking over their shoulders. For SAP to survive as a power in the age of e-business, Plattner has to relinquish oodles of power. So far, the small steps he has taken simply slow down the German giant's decline. Only far bolder steps will push SAP back to the top.
Still, Plattner's small steps are a start. Bucking German tradition, he persuaded the company's board to grant stock options to more than 10% of its 22,000 employees. He's creating semi-independent companies that will eventually issue stock--and ideally, operate free of SAP bureaucracy. The most important of these is SAPMarkets, launched in May and based in Palo Alto, Calif., which will become the on-the-ground partner of Commerce One. Earlier this year, he took on the engineering purists at SAP headquarters, making room in SAP's offerings for popular customer-management products from Nortel Networks. SAP also has streamlined the product installation process. "Our old projects took 18 months or two years. Internet speed means four weeks, six weeks," says Wolfgang Kenma, CEO of SAP Americas.
SAP has no time to dawdle. Web upstarts are staking claims to explosive markets that SAP can ill afford to miss. The company's core market for internal operations is expected to inch up at only a 5%-per-year clip, from $16.9 billion in 1999 to $21.4 billion in 2004, according to tech market researcher AMR Research. Meanwhile, AMR sees the rest of the corporate applications software market, where the upstarts are frolicking, tripling in the same period, to $57 billion.GOOD NEWS. The opening battles are already rocking the German company's finances. To fight off the competition and retain his workforce, Plattner hiked ad spending and instituted a costly bonus plan. This contributed to a 45% fall in profits in the first quarter, while revenue growth slowed to 10%. In the U.S., where the Silicon Valley upstarts have greater credibility, SAP's sales fell 3%. Analysts applaud the Commerce One deal and predict SAP will recover to 10% earnings growth this year. With that partnership, says analyst Merijn Nederveen of ABN Amro in Amsterdam, "SAP can call U.S. customers with good news. That's a change."
Still, Plattner, 58, a crack yachtsman with a Ferrari collection and a $7.5 billion stake in SAP stock, can't afford to go car-shopping in Milan or take to the high seas--yet. The future of SAP hinges on his ability to pull off a broad cultural revamp that refocuses the entire company toward customers. This won't be easy. Founded 28 years ago by two IBM veterans, Plattner and his colleague Dietmar Hopp, SAP established a culture in which engineers ruled supreme. These techies assembled, in their own computer language, the company's internal processes. Yet the massive software programs, called R/3, forced companies to bend their operations to SAP's software--a process that could take two to three years.
Trouble was, when e-commerce arrived, companies wanted to move at Net speed. SAP didn't yet have products and urged customers to wait. Customers, especially in Web-crazed America, paid little heed. They needed to link salesforces to the Web and bought programs from Siebel Systems Inc. They were eager to tie together chains of suppliers. SAP was working on a program, but i2 Technologies had one. Now, Siebel and i2 boast market caps of $28.1 billion and $20.1 billion, respectively, within shouting range of SAP's $34 billion.
Plattner has been on to the threat for two years. He put thousands of programmers on the mammoth job of redesigning SAP's geeky interfaces. The idea was that as the company's software traveled from corporate computer labs to the broader public on the Web, white formulas on black screens no longer sufficed. SAP needed clear presentation and colorful graphics on its Web pages. And it got it right. When Nvidia Corp., a Santa Clara (Calif.) graphic chipmaker, sized up SAP's applications against Oracle's, SAP won by a vote of 10 to zero, says Joseph Sura, the chipmaker's vice-president for information technology. Its software was easier to use. "SAP definitely gets the Web now," says Sura.
Late last year, Plattner launched a more ambitious project, mySAP.com. It was both an umbrella concept for SAP's Web strategy and a brand for the new versions of its software that had been adapted to work on the Web. Customers, employees, and partners of SAP's corporate customers see personal views of the information they need to make purchases or to collaborate. The page also offers e-commerce links, as well as e-mail, sports, weather, and news. With it, SAP might leverage its strength in the corporate software to become a workplace portal. Plattner did the math and came up with 100 million possible users at companies using SAP software. "We can be bigger than AOL" he said at the launch of mySAP.com a year ago.SHORTFALL. That hasn't happened yet. While SAP has sold some 3 million discounted licenses for mySAP.com, few of its big customers are installing the program. Facing this retreat, Plattner prepared to take controversial steps. In February, he announced SAPMarkets, which he financed with $500 million. It's in charge of coordinating the joint development project with Commerce One.
Will the Commerce One alliance be a sure winner? Ominously, an earlier partnership between SAP and Commerce One sputtered and died two years ago. SAP was an early investor in the e-markets company. Yet when the two companies tried working as partners in 1997, cultural problems arose. Noelle Leca, now an Alcatel executive, was working for Commerce One at the time. She traveled between SAP's Palo Alto laboratories and headquarters in Walldorf, Germany. "They were on completely different pages," she recalls. The partnership soon died in all but name, but SAP held on to the investment. Now, SAP is investing in a second chance with the e-markets' darling. The question is whether SAP's thrashings in the U.S. have taught the giant how to operate at Net speed--or if it is still too slow to keep pace with the Commerce Ones of the world.By Stephen Baker in Walldorf, Germany, with Spencer E. Ante in New YorkReturn to top