Subba’s Serendipitous moments

February 10, 2010

SAP faces the moment of truth

Filed under: Business,Competition,Leadership — Subbaraman Iyer @ 10:58 am
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In a surprise move, SAP announced the resignation of Leo Apothekar as CEO of SAP and instituted a co-CEO model. In retrospect, the problems at SAP has been in the making for a number of years.

SAP’s financials fell in 2009, like many others but it was in a recovery mode. In the full fiscal year 2009, total revenue was down 8% to €10.67 billion ($15 billion) and net income was down 5% to €1.83 billion (€2.57 billion). Q4 revenue was down 9% to €3.19 billion or $4.8 billion. Net income decreased 12% to €727 million ($1.02 billion) or €0.63 per share.

Software revenue in Q4 declined 15% y-o-y to €1.12 billion but doubled from €525 million last quarter. Software and software-related service revenues were down 4% to €2.57 billion but up from €1.94 billion last quarter. For the full year, software revenues declined 28% to €2.61 billion. Software and software-related service revenues were down 3% to €8.20 billion.

In the SME segment, SAP has just  73,000 customers globally despite making multiple product offerings like Business ByDesign, SAP Business One and SAP All-in-one.  SAP defines SME as business with 100-500 employees and revenue of less than $500 million. This was a clear under-perform given that Oracle managed to penetrate this segment.

SAP failed to execute the SME strategy effectively, something that I clearly foresaw about which I commented here.

The moment of truth was not just the revenue decline, but the impact of the lack of strategy both internally and externally.

This can be attributed to SAP’s lack of commitment to the SaaS strategy despite making public announcements about its willingness to offer the SaaS model. SAP’s strategy that Business ByDesign would essentially serve as an ‘on-ramp’ to its on-premise customers rather than be a distinct separate offering is a flawed one. This created huge confusion in the minds of the customers (something I had told them in 2007). Further it seems that this confusion spread amongst the internal staff who never understood how to position the SAP’s offerings in the market place. Hence I am not surprised that 50% of the internal staff didn’t express confidence in the executive board.

SAP’s decision to increase maintenance fees in the midst of the economic slowdown didn’t win any friends amongst the customers. It has shaken customer confidence about SAP’s customer orientation.

Is the co-CEO model the solution to the leadership challenge amidst such strategic and operational challenges? I am not so sure. SAP has had several leadership challenges in recent times as listed here.

Hasso Plattner was his usual candid self when he said “ But to be profitable, we will have to be a happy company and our customers have to be happy as well”. .

So expect Hasso Plattner to be not just visible but with his hands firmly on the wheel.

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September 9, 2008

HCL counters Infosys bid

Filed under: Business,Competition,India,Strategy — Subbaraman Iyer @ 6:29 pm
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I didn’t expect a bidding war over Axon.  I thought that it was a done deal. In my opinion, Infosys is already paying a big premium for Axon. Now, the Times of India reports that HCL Technologies is offering a 15% over and above the Infosys bid.

Between the two companies, Infosys at least has a better strategic fit and based on limited information that I know both Infosys and Axon have similar values. HCL Technologies may badly need this acquisition to bolster their presence in the SAP space, but given their management style, it is more likely that some cultural clashes could happen. Result — some of the star employees of Axon could just quit.

Will Infosys get into a bidding war?

It would be interesting to see who gets this expensive prize as Axon’s shareholders could still vote for Infosys bid, the higher price of HCL Technologies notwithstanding.

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April 27, 2008

State of the Business intelligence industry

Dave Hatch writes a good report on the expansion and contraction of the “BI” here.

He mentions three factors that inhibit expansion within the enterprise:

  • A lack of BI skill sets among non-technical business users

  • The inability to integrate data from all sources necessary to meet business needs

  • Poor data quality – end users do not trust the information.

I would add a few more based on my experience in Asia Pacific:

  1. Vendors tend to pitch solutions to buyers than to end users.

  2. There is often a big disconnect between IT and end users in terms of what BI applications to target. In most organizations BI tools often end up as mere reporting applications.

  3. End users often have little understanding of the analysis that they need that would enable them to do strategic planning. Barring the CFO community where the budgeting and consolidation process is often well defined, other functional areas rarely have a well considered view of the role of analytics as applicable to their functions.

  4. Many BI projects have failed to produce the necessary business outcomes and hence there is some kind of skepticism. This explains why despite BI being high on the priority list of CIOs, the actual usage has stagnated, something that you confirm.

I have long held the view that for BI to succeed, the vendor community has to invest in more awareness, education and process know how with users. Given that the BI industry has consolidated with Oracle’s acquisition of Hyperion, SAP’s acquisition of Business Objects and IBM’s acquisition of Cognos, (3 of the largest pure play BI vendors), this is unlikely to happen. These large software vendors are likely to bundle BI as part of their overall applications strategy, which could give users a standard template driven packages, but enterprises are unlikely to gain significant benefits or competitive advantage, as they have not been part of of the evolution of the analytics mind set within the organization.

David also talks of BI being delivered as a SaaS service. We evaluated its appeal, and found that a lot of standard reporting applications lend themselves to the SaaS model. The moment the analytics applications has to seek data from diverse data sources, organizations have no choice but to go for the on-premise model.

I don’t think that vendors have managed to integrate unstructured information into their BI solutions. Clearly there’s a need and there’s a market opportunity.

I just want to emphasize the fact that it is not often the problem with the BI tool set, it is the inability of end users to devise their analytics frameworks relevant to their organization that is blocking the growth of the BI industry. The vendors haven’t addressed this. They would have to establish a baseline literacy of BI tools and applications, and ensure more effective implementation, rather than merely focusing on selling standard applications.

The promise of BI is yet to be translated into actual performance. BI technology has no value unless one gains agreement from the users on how it is to be deployed, more so when unstructured data powered by people whose roles and interests vary has to be incorporated. Clearly a major rethink is required.

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