SAP stands firm in changing market

Computing talks strategy with Graham Kingsmill, business software giant SAP's UK chief

THE business software sector has experienced huge upheaval in the past two years, as major suppliers merge and consolidate to gain market share. First PeopleSoft acquired JD Edwards, then Oracle bought them both before embarking on a further buying spree during 2005.

Throughout this turmoil, market leader SAP has remained aloof, quietly increasing its market share and growing its sales. But Oracle is chasing hard and determined to become the new number one.

Computing talked exclusively to Graham Kingsmill, SAP’s UK managing director, about how industry consolidation is affecting the German software giant, and its plans for the future.

What has changed for SAP as a result of the recent market consolidation?

If you go back two years or so, it was fairly obvious that someone would acquire JD Edwards, because it didn’t have the critical mass of customers. We were competing in a world where, typically, shortlists consisted of PeopleSoft, JD Edwards, SAP and sometimes Oracle.

When PeopleSoft bought JD Edwards, this was great news for us. It created uncertainty. We were down to three players in that world. We couldn’t have written the script any better when Oracle came along and bought them both. It was perfection: the Ferrari Dino of situations.

That move caused a lot of people to start asking questions. The installed base for those organisations fell into three camps. For some, it was ‘I’m changing’, maybe because of a previous bad experience with one of those suppliers. At the other end of the scale some thought it was fine; they used the Oracle database, and it suited them. But most customers – probably 60 per cent – fell into the wait-and-see category.

They will probably want to do something, but won’t make decisions overnight. Certain UK blue-chip organisations had SAP and JD Edwards and PeopleSoft in various forms, but realised it didn’t make sense and standardised on one environment. Maybe half a dozen of the UK’s top 50 companies made that decision in the past six months.

The challenge now is this 60 per cent. Somewhere in the next year to five years, they will have to make a change. That is where it plays out for us. We’re not after a fast buck; we can wait.

So is it just business as usual for SAP?

No. You have to avoid complacency; if you think you have it cracked in this business then beware. When you have as dominant a market share as SAP, you can’t follow trends. You have to set them. We have set an agenda for the organisation we want to be in 2010, and it’s down to what we do in the next five years – how we architect the product, the way we go to market, the product environment, how we organise the business.

So what sort of organisation will SAP be in 2010?

First of all, we have to still be a company in 2010. We won’t be around unless we start to do things today and have a plan.

To remain independent we have to be successful. It’s simplistic to say that remaining in business is the key thing, but fundamentally that is what it is about. To do that, you have to do some simple things. You need to create happy customers who come back and buy more. The period of ownership for enterprise resource planning software is typically 10 years: a decade of looking, buying, running and gaining the returns. At that point, users ask what to do next. Is the supplier still right? Is the organisation doing the same things?

I have customers on their third generation of SAP systems – 30 years. We have to think about how to get those companies onto the fourth- and fifth-generation systems.

What are the major business issues your customers are talking about?

There are still customers that are pioneers and looking to do new things. Radio frequency identification is seen as the sharp end, but in reality it’s a lot more mature than some people think. You have to educate people to the capability.

But the driver more than anything is compliance and governance. For an organisation about to change its financial and general business systems, it takes a lot of planning, with somebody that knows what they are doing. You don’t undertake that lightly. But we are increasingly seeing firms that have been saving money for the last few years saying they now want to invest.

If companies are investing again, how has their approach to suppliers changed?

We are seeing more of non-executive directors. They are becoming an increasingly influential force. They are there to make sure that shareholders are suitably rewarded, but they are also concerned about long-term sustainability of the organisation. They look not just at the financials, but at other elements such as environmental issues, people management, social responsibility. And they influence the decision-making process of the board and who it buys from.

The challenge is that non-executive directors typically don’t appear until the very end of the sales cycle, and if they trip you up you are in trouble. You have a group of people who are healthily cautious. When you talk of big projects it makes them nervous. We have to get to them, and achieving that can be hard.