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Business First: SAP Transforms Itself Again

by Joshua Greenbaum

August 11, 2009

From a software company to an infrastructure company to a "business-in-a-box" company, SAP is marrying the best practices in a given industry with a carefully personalized approach to running a particular company. Greenbaum discusses the changes in SAP that these evolutions have produced.

SAP’s transformation from an enterprise-software company into an infrastructure company has been one of the more incredible metamorphoses in high-tech history, one that has confounded the common wisdom and provoked skeptics and proponents alike.

Now, just as the dust is settling and the common wisdom is finally coming around to accepting SAP’s new role as a legitimate technology competitor, a new transformation is at hand. This one is as much external as internal – as much about perception as it is about hard facts. But the stakes are just as high, and the challenge is one that, once executed, will result in an even more overarching shift in the landscape of the enterprise-software world than moving from applications to infrastructure could ever cause.

Selling One Business at a Time

The basic transformation now confronting SAP is this: On the eve of releasing a fully model-driven, service-oriented architecture (SOA) that allows customers to build and deploy, in effect, a living, dynamic model of their business, SAP is about to become much more than just a software company. Software companies make, sell, and service software. But SAP, in its new incarnation, is really selling its customers their businesses, in the form of assemble-to-deploy, model-driven, software components. The next big thing in business is to sell the end product – a fully functional, highly efficient business – instead of just selling the means – enterprise software – to achieve that end.

Even more important, via the model-driven environment, SAP is selling this new vision one business at a time. Each company buying the new SAP vision will engage in a component-assembly process that builds its own business from a collection of Web-service-enabled processes. Instead of a “one size tries to fit all” software environment, SAP customers will get a configuration system that, effectively, accepts input about how to individualize the business processes, and, once run through the system, spits out a finished business. At that point the business just needs to add people, customers, partners, and raw materials to get things rolling.

How does this process work? Industry analysts got a glimpse of it during SAP’s analyst conference in December. SAP board member Peter Zencke took the assembled analysts through a demonstration of what he called an “SOA by design” process, in which a fictitious company used a Visio-like modeling environment to choose the different business processes needed to run the company. Once selected, the system was implemented both as a personalized version of the mySAP suite and as a live model that the company could modify and redeploy at will.

This is where “one business at a time” comes into play. SOA by design, which is really intended for mid-market customers, is fundamentally a customization process enabling users to configure an existing set of processes into the precise subset – or superset – that forms the operational core of their company. Although SAP is careful to say that modifying the code is strictly off-limits, moving processes around according to a company-specific vision of process and workflow is required. Therefore, SAP can ultimately deliver a customer-specific version of its mid-market mySAP system right out-of-the-box.

To clarify, this isn’t just a mid-market vision. SAP’s high-end customers can also build their businesses one at a time – just not with the simplicity that the mid-market customers are able to tap into. The difference is that larger companies will want access to SAP’s extensive library of vertical-industry business processes, and – to be blunt – it wasn’t possible for SAP to make such a complex set of choices available in a deployment model as simple as the mid-market version is.

Nonetheless, with either deployment option the question remains, how does SAP make the move from software vendor to business vendor? To put it another way, how is SAP going to convince the world – and itself – that the next big thing is to sell the end product – a fully functional, highly efficient business – instead of just selling a means – enterprise software – to achieve that end?

Part of what makes this easy for SAP, and hard for most of its competitors, is that SAP owns the intellectual property around the key business processes for many of its two-dozen-plus vertical industries. These processes, when assembled using some of the software that Peter Zencke was showing off last December, look much more business-like than business software has typically looked. This means that the end product, a bona-fide business-process-driven business, should look much more like a real business than the results of a typical software engagement would necessarily yield.

This consultant-in-a-box approach has been tried before and has often worked, albeit on a much smaller scale. Indeed, most of what the packaged software market has been about for the last 20 years is taking consulting expertise and writing it into software code. This transformed the process of building a business in software from a tools and database-coding effort to the implementation and configuration effort we know and love – and hate – today.

SAP’s job now is to extend that buy-versus-build dichotomy to its ultimate conclusion: The capacity to build – or, rather, assemble – a complete business using SAP tools needs to be proven to work well not only from an efficient implementation level, but also from a business level. These one-at-a-time, assemble-to-deploy businesses that SAP is creating have to be a marriage of the best practices in a given industry with the most carefully personalized approach to running a business ever realized in a packaged software product. This can only be done the hard way – proving by example that the early adopters are successful, as measured not only by the current cost of ownership of enterprise software, but also against some as-yet-undefined metric describing the total cost of business ownership realized by the business-in-a-box approach.

Business, Plain and Simple

This new approach turns SAP’s slogan – “The best-run companies run SAP” – into one that will quickly be surpassed by a new model. It used to be relatively easy to show that leading companies chose SAP products. Of course, this essentially meant that the smart money was also being smart about buying SAP products. Proving that running SAP makes a business smarter – more efficient, more effective, more profitable – will be the new imperative for SAP.

It may be too early for a new slogan – “Running SAP makes your company the best-run company” – but the time will come when that will be the proof point for the next big thing that SAP has to offer. That proof point is coming soon. When it has fully arrived, SAP will achieve a business transformation that could put it head and shoulders above a competition that still sells technology for technology’s sake and software for everything else.

SAP is going to sell its customers a new business, and, in the process, recreate itself once again: The business of SAP will now be business, plain and simple. That’s not too shabby for a company that used to just sell software.

Joshua Greenbaum is a market research analyst and consultant specializing in the intersection of enterprise applications and e-business. Greenbaum has more than 15 years of experience in the industry as a computer programmer, systems analyst, author, and consultant. Before starting his own firm, Enterprise Applications Consulting (, he was the founding director of the Packaged Software Strategies Service for Hurwitz Group.

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