Is SAP's weakness its real strength?

Conversations with Doug Merritt, a member of SAP's executive council and the person driving Business Objects as a platform for intelligence are always entertaining. Merritt represents the unconventional, disruptive element within SAP that was in evidence during Shai Agassi's tenure.
Written by Dennis Howlett, Contributor

Conversations with Doug Merritt, a member of SAP's executive council and the person driving Business Objects as a platform for intelligence are always entertaining. Merritt represents the unconventional, disruptive element within SAP that was in evidence during Shai Agassi's tenure. For me, Merritt charaterizes the public face of fracture I believe exists inside SAP. He acknowledges this is the case but says: "All major software companies are facing the direction issue right now but I say it is possible to profitably continue on multiple streams of development." The example he gives is of the motor vehicle where you develop a super efficient, elegant model and a race car in parallel: "They're not the same and you can't bring them together but you can run them side by side." I'm not so sure SAP is able to do this.

Phil Wainewright points out that in Business ByDesign, SAP is demonstrating the classic problem traditonal software companies face when introducing a very different type of software that is delivered in the on-demand model:

Business ByDesign is turning into a masterclass in how SaaS innovation can never thrive inside a conventional software company. Its developers started out grossly underestimating the scale of the task ahead of them. Now that they’ve started to understand what they’re up against, they’re being starved of development resources and marketing spend.

Phil's observation neatly captures the dilemma SAP faces generally. For example, it seems to me that the socially oriented Plexus environment which is currently used for reaching out to the SAP ecosystem could usefully be extended to include analytics of the kind BusinessObjects delivers and then tied back to the transaction system. This would be a way to use technology that's available now to start thinking about unlocking value tied up in the supply chain. AMR's Nigel Montgomery agrees. In conversation around Plexus he said: "I can't understand why they aren't thinking about productizing this - it represents a genuine opportunity to do something very different that adds value." I fully agree but can't see it happening any time soon even though elements within the company know this is a no-brainer concept for designing something the market could readily consume.

Here's one answer - who is going to give up budget? Right now, the components necessary are in the hands of different groups within SAP. Those groups are budget constrained as the company strives to improve profitability. We hear the message that SAP is concentrating on the core and not going after these innovative opportunities. As I said earlier:

I asked Pascal Brosset senior vice president, SAP portfolio strategy about SAP’s vertical market strategy. He reiterated SAP’s desire to stick with developing the core: “Our customers consistently tell me that’s what they want,” he said. Implicit in that approach is that customers want better value for money and a long term reduction in TCO.

In which case, where is SAP's €1.6 billion annual R&D spend going? A good question raised by Vinnie Mirchandani on many occasions to which there is no clear answer other than a concentrated effort on getting NetWeaver 7.1 in shape to support Business ByDesign and the larger suite. It's another example of the implicit fracturing that exists within SAP.

Perhaps part of the answer lays in the fact SAP has done a 90 degree turn from where it was a year or so ago when it was talking about co-innovation and extension into vertical markets. It is now saying that it wants to deepen its hold on the enterprise by improving the core, leaving vertical market functionality to specialists. If that's truly the case then it will need to provide much easier ways for third parties to integrate to the core.

But such a strategy poses another set of problems. I suggested to Merritt that developers want challenges that are seen as innovative. Ergo it will become difficult for SAP to attract and retain the kind of talent we saw emerging through the Imagineering team. Why for example was Dan McWeeney allowed to go to Adobe after his time there, albeit he was a Colgate-Palmolive employee at the time? Most people I meet believe Dan is one of the brightest people around. As Vinnie said: "He's a special case." The same goes for Ed Herrmann, Dan's partner in the Colgate Twins project. The work they demonstrated at TechEd shows that SAP can be exicting. Where is that same excitement today?

Having said that, ecosystem partners tell me that SAP skills remain in short supply. Even so, Merritt agreed that the fight for talent would leave SAP as something of a revolving door. But then Merritt made another intriguing observation: "When you look at other companies in this space they are often vulnerable because the leadership is in the hands of one person. Look what happened to Siebel.  The same is not true at SAP where there is a collegiate style of leadership and where you have permission to fail, you can ask forgiveness when it goes wrong and that's OK. That makes SAP a much more difficult target to pick off."

He may be right but I still wonder where the next breakthrough is coming from. My concern stems from the fact SAP is too focussed on looking back at past success in the belief that the mistakes of the past can be learned from and not repeated. It is the kind of thinking that typifies why the Business ByDesign rollout has been decelerated. The trouble with that is we're living in a different world where the pace of change is dramatically faster than that of the 1990s. It will only take Google to use its cash generating ability to make a clutch of application acquisitions for that to spell real danger to SAP. Merritt agrees: "I fear what Google might do far more than any other vendor," he says.

If you agree that scenario represents a genuine risk then SAP should be acting now rather than reacting. It wouldn't require a lot of effort. It merely requires the will of the executive to see the opportunities - like Plexus - and allocate resources to get the job done. When I suggested that to Merritt, posing the idea that the top tier board and the extended board thrash this out he smiled wryly.

Regardless of what people like I think, SAP remains THE most interesting enterprise vendor out there with an ability to innovate when it sets its collective mind to the task. The fact it has the most advanced blogger program of any vendor and takes the risks that brings speaks volumes for its willingness to not only reach out but accommodate those who are among its fiercest critics. It's hard not to wish the best for a company that behaves in that manner because in the end, it is good for those who are SAP's final arbiters - its customers.

Photos courtesy of Farm1 and Ed Herrmann

Editorial standards