Case Study: SAP America

Case Study: SAP America

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1. At the time of the case, why has SAP America grown so rapidly? What challenges have been created by the company’s explosive growth?
There were several reason for the rapid growth of SAP America during mid and late 90’s. Throughout the evolution, the parent company of SAP America, SAP AG, wishes to provide a better product based on the evolution of technology as well as based on the changing customer needs, and thus invested consistently on R&D activities. 20-25% of SAP AG’s gross revenue were re-invested in research and development. In fact, almost one quarter of the company’s employees were working on research & development activities. Adding to the point, they carried no debts over a period of time as well as they didn’t book revenues until product delivery to customers.

One important strategic decision that Besier, the CEO (who believed that his products should be sold heavily on American market that that of Europe), took was to move away from the German model in several aspects. One of the aggressive decision he took was to put the entire sales force team under commission sales plan as a result of which, Chevron, the first multimillion dollar sale of R/3, evidenced to be a turning point for SAP. As an outcome, SAP outperformed all of its competitors by 300-800%, the success opened up other large accounts to company.

In order to increase the sale and number of customer to the company, SAP America established autonomous regional Profit & Loss (P&L) center with their respective sales, consulting and training teams. This resulted in every regional office to work on their own sales and marketing strategy to improving the sales. In order to penetrate the market and build a base, they created an industry strategy called ICOE’s, who act as bridge between the customer and product development organizations.

When there is a growth there will always be hurdles and challenges. There were two major challenges for SAP America, one is within the organization (or) internal challenge, the other challenge is external (or) challenge from competitors. The autonomy of regional office led the company to have different approached for same problem, thus results in providing same solution 4 times for 1 problem. Thus seems that SAP America is not acting as a single company. Resource Utilization is also a key challenge to the company, as the training and development service offered by the company is not utilized up to the mark in one part of the region, however it is utilized more in other regions.

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This causes discrepancies in utilization.

When there is an organization in market that sell’s some product, there will always be competitors or external challenges and SAP America too is not an exception for that. In 1995, competitive companies such as, Oracle, started providing worthy alternatives for R/3. Being an ace in the field of databases, Oracle deployed Enterprise Information System (EIS) on top of its databases and started marketing aggressively. Though SAP America has already won a lot of large accounts, they are in pressure to provide a quality and improved service to their existing customers for maintaining them in future. There was always a market perception about SAP states that most of its project were going for 18-24 months and this takes a longer time. Thus, this perception made SAP hard to penetrate the mid-tier companies.

2. What are the critical features of SAP's approach to partnering? What role has partnering played in the company’s success?
During summer 1993, the SAP America’s first strategy meeting was held on Bermuda and important ambitious sales target of $1 Billion was set. In order to achieve that the company proposed three strategies amongst them one is Partnering and their investments in the company. Each partner is given an R/3 and assigned partner manager. Ott worked on developing the partnering strategy and proposed four categories.

One important feature of SAP’s partnering strategy was, they never had any financial tie ups. They partnering tie ups were always mutually beneficial. In order to leverage client relationship and industry expertise, they need professional services to provide resource and service in sale and implementation of SAP products. This results in formation of Alliance partner who will provide those service. Though innovation is key to success, in order to be consistent in the market, a software should always be in sync with current and future technologies. So SAP decided to have tie up with Platform partners who provide such infrastructure services. Though hardware infrastructure acts as key functionality for performance, an environment that every end user can understand can be provided by software, thus resulting in Technology tie ups. There are different vendor who develop wide range of applications that runs on top R/3, therefore in order to maintain interoperability, the company decided to have Complementary partners.

SAP managed a healthy relationship with its partners. SAP shares their plans and goals every year with their partners. Partners were also living up SAP’s standards by maintain the customer satisfaction above threshold and committing a partner manager of their own to SAP. SAP, on regular interval collected feedback from the ultimate customers about the product and based on that they insisted the partnering companies to work further in improving. Say for example the Alliance partners should have a software implementation methodology that is compatible with R/3, else they will be warned. In fact two of such partner’s we removed. Because of technology and platform partnering, they could develop their products more efficient and flexible. Partnering with SUN made their R/3 efficient with SUN databases.

3. What is your evaluation of the new organization? What problems was it designed to solve?
SAP America has become “one company” as the scattered regions and ICOE’s were brought under the roof of Biddle, yet not completely turned into a vertical management structure. Thus the company had overcome the decentralized structure. Earlier, due to stretched project time the cost of R/3 look even higher than that of its original estimated cost. This issue can be overcome in the new organization as there were no decentralized structure and hence when there is a problem, one team can work on it and rest all be aware that someone else is working on it and there is no need for additional resources. Earlier all the manager’s gained superior power because of autonomous regions, however the new organization limit the powers of manager and hence prevent them from creating their own consultancies. The new organizational structure will always have someone to report and hence breaks the ultimate authority as well as limit the responsibility. Since the projects timing were shortened, the concentration toward mid-tier market is increased. Resource utilization is key constraint in the earlier system, however the new system will break the discrepancies among the resources. The Sales, Consulting and training were assigned as separated as individual Line of Businesses respectively. Therefore the new organizational structure allowed more resource for Sales and Services.

4. Assess the components of value of the SAP offering using the multiple dimensions of value idea in Chapter 4. What does this assessment tell you?
In Multi dimensions of value a Technology’s Standalone Value and Network Externality Value are strong influential factors. SAP has tie ups with most of the major hardware and software organizations through their platform and technology partnership. Therefore the software operates like any other software in the industry as a result of which customer convenience is achieved, which is key consider of a technology’s standalone value. SAP always value its customer feedback, as seen earlier the product and partnerships were molded based on the past customer feedback. Therefore SAP offers aesthetics and ease of use qualities to all the users who use it on different platforms. SAP is highly flexible for user. Based on the organizational requirements the software can be designed and based on the number of user, the charges will be accounted. SAP has collaboration with complementary partners and hence it offers lot of applications with runs on top of R/3. The key shortcoming of SAP is its longer duration of development and high maintenance cost.
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