ByDesign, the younger person's ERP

SAP seems to think its Business ByDesign SaaS offering will appeal to the younger generation of small business owners. But are SAP's own company elders giving the youthful project enough space to thrive?
Written by Phil Wainewright, Contributor

Many of the small and mid-sized businesses to whom SAP would like to sell its Business ByDesign SaaS offering are family-owned, especially in sectors like manufacturing, distribution and retail. SAP seems to feel that ByDesign will appeal to the forward-looking younger generation of those families — the future heirs of the business.

"The younger generation of midmarket leaders are computer-savvy," SAP's co-CEO Leo Apotheker told me this week at the company's SAPPHIRE Berlin conference [disclosure: SAP paid my travel costs]. "They rely on their own wits to make a decision."

Looking around, they can see that their businesses need to increase their use of software automation. Many smaller manufacturing companies are still heavily reliant on manual processes, said executive board member Peter Zencke, who has overseen the Business ByDesign project since its inception. "They feel the pressure to deliver just-in-time to quality [standards]," he said. "There is this pressure on these guys to deliver process quality."

Electronics manufacturer WIMA, an early adopter of ByDesign who met with a gaggle of Enterprise Irregulars and other bloggers on Tuesday, provided a case in point.

"We are a sixty-year-old company," said David Suntinger, in charge of corporate development at WIMA. "Many of our internal processes are old-fashioned. For us it's very important to see how process can be. We think it may be a good thing to change to some of the processes in ByDesign."

What is the likelihood though when those Web-savvy heir apparents research the options before making a decision, that Business ByDesign will come up as the answer? By far the largest element of WIMA's ByDesign implementation project has been consolidating data from the current pot-pourri of best-of-breed and ad-hoc applications scattered across the company's four locations — a task that has taken the best part of a year to complete. That's something the company would have had to do anyway, whatever new system it decided to move to. The mere fact of moving off the current applications will be worth it to make the company's processes more agile. With the current applications, said Suntinger, "the running costs are not very high but the costs for support and for changing things is very, very high. This is a very big issue for us."

Of course SAP's reputation and brand name will make it easier to persuade the older generation to back such a project than asking them to go with a Web-native US start-up like NetSuite, which targets a similar product at the same market. Perhaps SAP's entry into the midmarket with an easy-to-configure, pay-as-you-go SaaS product will play a valuable role in bridging the generation gap within its target customers, persuading more of them to make the leap to better-integrated automation.

But SAP also has to confront its own inter-generational demons in bringing Business ByDesign to market. The inner conflict was perhaps best summed up by a passing comment made by Zencke. "Young people like the product," he said in the midst of a discussion of the new generation of consultants that may make up SAP's partner channel taking ByDesign to market. The corollary was also true, he conceded: "Frankly speaking, it's not really helpful if someone has fifteen years' experience in ERP for that new business."

While competitors like NetSuite are spending hand over fist on sales and marketing to ramp up their revenues, SAP's management has insisted that Business ByDesign must be profitable when it is released to general availability. Internally, the key metric is known as TCO — total cost of ownership — made up of SAP's operational, development and sales and marketing costs for ByDesign. Although progress had been made since the launch of the product last year, the decision was taken at a crunch meeting last month to decelerate the go-to-market plan and push back the release date. At issue, said co-CEO Henning Kagermann: "Can you bring TCO down fourfold? We will know that this year."

The deceleration consists mainly of restricting the roll-out to six countries — all of them still growth territories for SAP — while pushing back general availability by 12-18 months. Some of the TCO reduction will come from improved automation of the upgrade process, due to take effect in the 2.0 release early next year. "The objective is to have a seamless upgrade with minimal downtime and minimal testing so the customer has a safe landing to the new release," said Zencke. A further reduction will come from streamlining the sales process. No one is saying how much of a factor this is, but all the indications are there's a lot riding on it.

In the meantime, no expense is being spared to ensure the first wave of customers are successful. "We understand that they have put very big resources now in the pilot customers to bring every project to a good end," said Suntinger. It appears that WIMA has at least ten consultants assigned to its project — a resource that is there as much for SAP's benefit as for WIMA's, and it seems unlikely the company is being charged much if anything for it. "It's a new product for SAP and for the consultants, so it's not easy for them," said Suntinger. "It's a contest between us and the consultants who knows the product better."

But SAP seems uncertain how exactly to deliver that last surge of TCO reduction from the Business ByDesign sales process. One element is the addition of new, must-have features, such as support for RFID technology for stock control or automating all the legal aspects of completing a financial closing. Another is to refine the targetting to concentrate on industries and company profiles that have proven most receptive to the product. But the most important factor seems to be identifying and nurturing a new type of partner.

According to Zencke, the way forward is to have partners developing their own ByDesign templates that they are able to reuse with customers in a particular vertical field of expertise. But the ByDesign model requires a different approach to professional services from that practised in the traditional SAP channel — a new approach that offers more of a continuous consulting partnership and which focuses on business consulting rather than technology. "If someone focuses on that kind of consulting, it really starts with knowledge of the business," said Zencke. "That kind of consulting is of high value. If our solution makes that kind of new consulting a [sustainable] business then I think we have solved something."

In ByDesign's favor, there's a growing perception that early customers are enthusiastic for the product and the potential it offers their businesses. SAP seems to have got the product right. "I see it as a rough diamond and it's 90% polished," said Suntinger. "We have got confidence that they will do a good job delivering to customers what they promised us."

But the other side of the coin is a sword of Damocles hanging over the project, insisting on it proving itself commercially even though much of the go-to-market economics seem to be predicated on the instant appeal of product features that haven't been introduced yet and the dynamics of a channel that doesn't exist yet.

Fellow Irregular David Terrar asked co-CEO Kagermann whether he felt ByDesign might have benefitted from being spun out as an independent venture rather than having to work within SAP's culture. "It's key for us to bring the product to market in an on-demand mode," responded Kagermann, insisting that SAP had to be in control of that development process. Only once the product has been proven would SAP then consider spinning it out, "if we then find out in order to make it successful you need a different culture." By then, though, it will be too late. SAP has made its decision to keep ByDesign within the family business. It's not yet clear that it can thrive within the constraints of that environment.

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