03:06 PM

Small Steps, Big Plans

SAP America's lean-and-mean software strategy may open up markets

It's fitting that Bill McDermott's first major product announcement as SAP America's president and CEO involved a set of applications for businesses with as few as 10 employees. At SAP, whose software is synonymous with megaprojects, the emphasis now is on smaller, faster, and cheaper engagements. The challenge for SAP America's new leader is to show other companies that SAP can help them become lean and limber, while the vendor bulks up its sales in the process.

The German software company's introduction in New York last week of SAP Business One--a suite of enterprise resource planning apps for small and midsize companies, delivered in partnership with American Express Co.--was a coming-out party of sorts for McDermott, who joined SAP six months ago from Siebel Systems Inc., where he was executive VP of worldwide sales operations. McDermott has been busy building an executive team to make SAP America a harder-driving, more customer-focused company. His latest hire is Oracle veteran John Nugent, who will oversee SAP America's sales team. "That's a big hire for us," McDermott said in an interview last week from SAP America's headquarters in Newton Square, Pa. "This exec had to understand the customer, enterprise apps, and had to be a person that fit into our culture--a person who values the customer."


SAP will help customers speed business processes, says McDermott, SAP America's president and CEO.
With his new team largely in place, McDermott is turning more attention to executing on SAP America's "triangulation" product strategy. It involves delivering even more targeted industry-specific applications (SAP already has products tailored for 22 vertical industries), adding functionality to existing product categories, and scaling applications for businesses of different sizes. "We're getting very focused on specific applications for specific customer requirements," he says. The 41-year-old McDermott, who was president of Gartner before joining Siebel and spent 17 years moving up the management chain at Xerox before that, believes there's pent-up demand among CIOs and CEOs to license applications following the two-year clampdown on IT spending. "They realize they have to be bold again," he says. "They have to innovate. Their business processes have to be faster."

All of which is true for SAP, too. Its application license revenue declined 6% last year and grew a measly 1% in 2001. As bad as that sounds, SAP has weathered the software-industry downturn better than others, and it's positioned to increase market share, according to Morgan Stanley analysts. They estimate SAP's license revenue will grow 10% this year, compared with an average 2% growth for a group of companies that includes J.D. Edwards, Oracle, PeopleSoft, and Siebel. And SAP's share of the enterprise applications market will grow to 55% from its current 51%, Morgan Stanley predicts. Working in SAP's favor, the company says, are a revamped U.S. subsidiary, improving margins, a solid Web-services and integration strategy, and a research and development budget--almost $1 billion--that's bigger than competitors'.

SAP's Business One applications, introduced in Europe last year, are an important part of its U.S. growth plans. Percentage growth in the small and midsize business market "will be at least double that of our core business," McDermott predicts. The suite, based on software acquired last year from TopManage Financial Solutions Ltd., is aimed at companies with no more than a few hundred employees that want a simpler, cheaper, and easier-to-implement product than the mySAP All-In-One midmarket suite.

American Express Tax and Business Services Inc., a subsidiary of the charge-card company, will create its own branded versions of the Business One apps--including industry-specific packages--and sell and support the software through a distribution network of partners it's still developing.

Duane Taylor, VP of finance for NextiraOne Federal, a $50 million-a-year subsidiary of NextiraOne LLC that sells telecommunication systems to federal agencies, attests to SAP's claim that the new apps can be deployed in two weeks, a huge change for a company long associated with multiyear rollouts. Fifteen sales consultants and financial managers were using the software in that time frame with American Express' help, he says.

McDermott is looking to alliances like the one with American Express to get more "feet on the street" selling SAP's software. But SAP needs to be careful not to rely too much on partners in its midmarket push. Jim Weston, CIO of Wolverine World Wide Inc., a footwear company with $826 million in revenue last year, wants to be able to reach SAP personnel directly as he adds SAP modules for demand planning, call-center management, strategic enterprise management, and Internet sales to core ERP apps. "It's important we have somebody in SAP connected to some of these implementations," Weston says.

Customers like Weston should expect more attention. McDermott plans to "redouble SAP's focus on the installed base." SAP is making it more practical for customers to take on projects without licensing its full-blown suite. Earlier this month, it introduced mySAP ERP, which provides the core ERP components of the mySAP Business Suite as well as the new NetWeaver application and integration software but not SAP's other applications.

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