International BusinessGERMANY

SAP S EXPANDINGUNIVERSEThe software giant's ambitious new goal:To be everywhere business is taking place

For a couple of years now, successhas come to Germany's SAP on asilver platter The $3.5 billion soft-ware giant capitalized on fears

that two looming events, the new mil-lennium and the ci'eation of a single Eu-ropean cun-ency, would wreak havoc onmultinationals' information-technologysystems. Instead of combing throughtheir computer systems looking forbugs, many of SAP'S 8,000 customers justbought new software packages. Thiscontributed to sales gi-owth of 62% in1997. But it's getting late for compa-nies to install all-new software beforethe yeai" 2000, and now SAP must ftgiu-eout what to do for an encore.

Its executives have come up with anambitious strategy, SAP already domi-nates the $12 billion market for so-calledenterprise softwai-e. programs that canmanage all of a coi-poration's internal op-erations in a single powerful network.Now, SAP plans to branch out beyond itscustomers" walls, building bridges to theirsuppliers and customers. In this scheme,a vast SAi'-based network could track anentire industrial process, from miningiron ore in Minnesota to steelmaMng inIndiana to car production in Detroit—allthe way to selling autos in showiTionjs onthe Web. The payoff, it is hoped, wouldbe entire industiies run as efSdently as asingle plant, with razor-thin inventoîiesand the leanest of workforces.FRIENDLIER SOFTWARE. With t ime, if co-chairman Hasso Plattner has his way,fíAP will grow from a faceless industrialsupplier into a global brand name. Theplan is to push into consumer markets,from department stores to Internet malls.At a Los Angeles users' convention onSept. 13, Plattner will unveü a strategythat could position the company virtuallyeverywhere business takes place.

But to gain that stature, SAP mustmaster new markets where a host ofcompetitors is already entrenched^—andwhere more are expected. "There areloads of little guys in those markets.

and eventually Mi-crosoft Corp. will bethere," says Neil Is-coe, chief executiveof Focus SystemsInc., a maker oflegal software inAustin, Tex.

Nonetheless, SAPis plowing ahead. Allaround its headquar-ters in rural Wall-dorf, in Germany'^lush Rhine Valley,workers manning aforest of cranes arepiecing together avast complex of newSAP buildings. Thecompany will hire5,000 employees thisyear, expanding itsworkforce by 35%,and is expanding re-search labs from PaloAlto to Minsk.

Plattner is keepinghis investment num-bers mum. But witha research and devel-opment budget top-ping $500 million, SAPcan spend more mon-ey per year on re-search than most ofits rivals rack up insales.

The challenge forSAP, a company longknown only to thetechies in large com-panies, is to come upwith a stream ofsnazzy, customer-

FOREMANCo-Chairman Plattner islooking down the food

friendly applications, chain, to smaller customersHere, Plattner --ISlooking for help. In the past year, SAPhas begun placing pieces of its bread-and-butter enterprise software package,called R/3, on the Web.

s t f i i t i ' j ; \ \ I K I S i t s

risks, since those piecesinclude the computer codethat forms the basis ofSAP'S success. But the ideais that by sharing the

code with developers worldwide, SAPwill encoui'age them to build a panoplyof applications for its systems.

This spells a fundamental shift for

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International Business

Plattner plans to put bits of SAP's code on the Web andmake it the lingua franca of global business

the giant. Ti'adition-ally, SAP'S systemshave been carefullycrafted, though ofteninflexible, marvels ofGerman engineering.Installing these pro-grams, sometimes ata price topping $100million, has blos-somed into a $30 bil-lion industry. Now,Plattner wants to dis-tribute his system farand wide, hoping tomake SAP'S code thelingua franca of glob-al business. "For thefirst 25 years of ourhistoi-y, we provideddata to people," hesays. "For the next25 yeai-s, we'll handleinteractions betweenpeople."

As a first step, Plattner plans tobroaden the company's offerings. He ispreparing simpler, cheaper versions ofSAP'S enterprise software, providing fi-nancial, warehouse, iuid human resoui'cepackages for small and medium-sizecompanies. Meanwhile, new co-chair-man Henning Kagerman. a former headof SAP'S European operations, is over-seeing the development of new soft-ware for still uncovered niches withinthe 17 industries SAP caters to, fromutilities to chemical plants. These couldinclude programs to reconfigure autoassembly lines for gi'eater efficiency,for instance.

Until the new products start bring-ing in profits, SAP'S breakneck growthpace is sure to subside. After a 66%sales increa.-ie in the first half of this

SAP'S NEXT FRONTIERS• Developing systems that will let buyersorder customized cars or other goods atthe place of sale

• Creating software to link all of a compa-ny's suppliers into a single network

• Writing business-analysis programs for ex-ecutives on earnings enhancement

DATA: BUSINESS WEEK

year. " S i e a uip cum WALLDORF NERVE CENTERmg. Plattner says. Ana- „ . „ . , , „ . .,lysts believe that SAP'S SAP IS also bulking up ltssales and earnings overseas Operations, fromgi-owth will slow to 35% Palo Alto to Minskthis year and next.That's partly because the giant multi-nationals that have fueled SAP'S busi-ness so far are mostly set up with en-terprise systems. And in the currentmarket climat«, many corj)oi'ations mayopt for less costly add-ons. Even so,analysts expect SAP to outpace thecompetition. "They're still gaining mar-ket share," says Loretta Morris, Eu-ropean portfolio manager at NicholasApplegate in San Diego.

While SAP embarks on its new path,it is also wi-estling with generationalchange. Plattner's co-founders—the for-mer iHMers who set up the company 26WÊÊm^^ÊÊ^m^^ years ago—are moving

from executive into ad-visory roles. DietmarHopp, the technicalwhiz behind the enter-prise software, lastspring switched to alowei'-profile ¡xist on theadvisory board. AndPlattner wants to hireyoung talent to guidethe company in untriedmarkets. In March, SAPraised its stake in asmall German sales-

force automation com-pany, Kiefer & Veit-tinger, to 80%. Thatdves it a footholdin technology-aidedsales, a market thatis expected to growfrom $1.4 billion to-S-1.8 billion in theiii-xt two years.

Indeed, it is insales and marketingthat SAP faces itsbiggest hurdles. P'irst,the company has areputation for tortur-ous installations, de-spite a worldwideteam of troubleshoot-(MS. It was a rockyinstallation that ledDell Computer Corp.to abandon SAP lasty((ai' halfway througli•d multimillion-dollarenterprise project.And SAP faces a $500million lawsuit fromthe trustee for bank-i*upt FoxMeyer Coip.,

charging that the failure of an SAP sys-tem led to the Carrolton (Tex.) drugdistributor's collapse—a charge SAI' ex-ecutives hotly deny.GATES AT THE GATE. Second, nimblecompetitors now occupy all the nichesSAP plans to attack. In fact, many ofSAP'S biggest customers have alreadyinstalled other systems for sales andmarketing applications. But like otherindustry leaders, SAP has the cloutto bring products to market far laterthan its rivals. It can appropriate ef-fective features from the pioneers, cor-rect their mistakes, and try to wrestaway market share by offering seam-less integration with its massive in-stalled base.

Eventually, SAI' is likely to run head-on into that other software titan, Mi-crosoft. For now they are partners,working together on loads of applica-tions. Microsoft Chairman William H.Gates III, however, has declaredan ambition to build the nervous sys-tem for business—the same goal asPlattner's. For the next few years, atleast, the world looks big enough forboth of them.

By Stephen Baker in Paris

170 iiUSINESS WEEK / SEPTEMBER 14. 1998

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