Software AG turns its attention to India in plan to reinvigorate services

Software AG, Germany’s second largest IT vendor, wants to build up its services business and to use the opportunities of the talent pool in India
Written by Jakob Jung, Contributor on

When Germany's second biggest software vendor, Software AG, turned in its most recent set of financials, it delivered something of a mixed picture: second-quarter revenue was flat at €258.6m, licence sales were up by 32 percent year-on-year at €76m but services were noticeably down, falling 20 percent year-on-year to €82.7m.

To address the issues in the services business Software AG has appointed a new executive, Tönnies-Hilmar von Donop, who joined the group executive board in July as COO of the company's global consulting services business.

Von Donop, a 15-year veteran of Accenture, where he held various management positions, outlines his strategy simply: "We must increase staffing and the number of our competency centres."

Currently Software AG operates only one competency centre, a number Donop wants to increase to four, covering EMEA, Asia-Pacific, North America and Latam/Iberia, while also greatly increasing the number of IT support specialists on the company's books.

The backbone of his strategy rests on the talent pool in India: "The quality of education in India is excellent. Indian IT staff is unequaled in SAP skills and industry know-how," he says.

Software AG's global offshore delivery centre in India employs 180 certified webMethods experts, which is set to grow to 230 by the third quarter of this year. The support team is co-located with the company's R&D teams, a move aimed at cutting down delays.

As well as India, the company is planning to strengthen its focus on the American market and has already moved key people to Silicon Valley – according to von Donop, there is a strong opportunity for growth in the US enterprise space, thanks in part to the acquisition of US-based big data company Terracotta in 2011. While a stronger vertical focus is planned, there are no details yet on which industries Software AG will be targeting.

Elsewhere, Von Donop wants to strengthen the ties to global system integrators including his old employer Accenture to support its product portfolio, particularly around Terracotta and WebMethods.

Closer to home, Donop admits there have been difficulties in integrating IDS Scheer Consulting, which Software AG bought in 2010.

Scheer saw its revenue decline 32 per cent year on year in the recent second-quarter financials, thanks in part to a drop in sales at its SAP consulting practice.

Von Donop is now aiming to convince Scheer's employees personally that a bright future lies in store for them if they stick with it, adding the problem with IDS Scheer consulting stems from the fact that it was not truly a global organisation, focused chiefly on the German market prior to its acquisition by Software AG.

In the first quarter of the year, Software AG decided to run the SAP consulting business separately, with a 'partnership-style' structure. While analysts had thought that the move could signal Software AG was planning to divest itself of the unit, Software AG's CEO Karl-Heinz Streibich denied it was on the cards.

Putting the SAP consulting practice's slide in revenue down to a decision to withdraw from unprofitable projects, Streibich told the company's second quarter earnings call: "We have no plan to sell the business, we don't have a plan B, we only have a plan A, and that is that those gentlemen [von Donop and recently-appointed head of the SAP consulting business, Michael Rehm] are managing this business and that they make a success out of it."

Going forward, Software AG is also looking to organic growth to help bolster its services revenue and is striving to increase the share of wallet in existing large customers.

"Customers want to break free of the stranglehold of SAP. They cannot differentiate themselves from their competitors because everyone uses SAP," says von Donop.

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