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Small Steps, Big Plans

SAP America's lean-and-mean software strategy may open up markets
SAP's scaled-down approach doesn't work for everyone. Air Products and Chemicals Inc., a multibillion-dollar company with operations in 30 countries, is entering the third year of a five-year, $250 million rollout of SAP software. The implementation started in Germany last June and will expand to five European countries this June and then to U.S. operations in August.


DUANE TAYLOR PHOTO

Fifteen employees were using SAP's software within two weeks, NextiraOne Federal's Taylor says.
"The driver behind the project is to standardize our business processes and business models globally in a common framework," says Cheryl Flannery, an IT program manager with Air Products. The company hopes to benefit from SAP's more adaptable architecture, Flannery says, by putting in "basic building blocks now in a way to easily add components later." Among the apps to be used first are sales and distribution, finance, and material management.

But Morgan Stanley analysts caution that new flexibility in how SAP delivers and licenses software has potential downsides. "The shift to a more component-oriented architecture means more moving parts and upgrade complexity," they wrote in a February report. In some cases, they warn, companies could end up paying for application extensions that, in the past, might have been included in maintenance upgrades.

Next, SAP plans to build on its fast-growing customer-relationship management offering. Within a few months, it will unveil a CRM upgrade that includes built-in analytical capabilities, works with wireless devices, and is tuned for different industries. The release represents SAP's biggest R&D investment ever, VP Darc Rasmussen says. An upgrade to its supply-chain management applications is also in the works (see "Supply On Demand," March 3, p.47).

Underpinning all this is SAP's NetWeaver platform, which combines application integration with portal, Web server, and electronic exchange functionality (see "Process Oriented," Jan. 20, p. 20). In the third quarter, SAP will add a layer to NetWeaver that helps companies get a more accurate and complete view of enterprisewide information. Called master data management, the software is based on SAP's earlier work replicating R/3 data and integrating business-to-business content. Key features will be a data repository and common object model that, in addition to providing centralized data control, support SAP's emerging line of composite snap-in applications called xApps.

SAP realizes that many companies have multiple ERP implementations, each with its own definition of materials and customers, says Jennifer Chew, an analyst with Forrester Research. "A single version of the truth becomes impossible," she says. "If you ever want to provide your suppliers or customers with an external view of your supply chain, master data is where it starts." Most enterprise-app vendors are taking steps to break down barriers that exist between applications, and Chew says SAP is one of the strongest in recognizing that it needs to coexist with best-of-breed and legacy applications.

SAP's challenges include tough economic conditions overseas, where the company does two-thirds of its business, and new products that are still in early stages of adoption, analysts say. Oracle, PeopleSoft, and Siebel remain fierce competitors, and Microsoft is moving into SAP's market, too.

And there's the loss of Hasso Plattner, an SAP co-founder who disclosed a few weeks ago he was stepping down as co-CEO at the parent company. That puts pressure on new executives such as McDermott and Shai Agassi, a technology strategist and member of SAP's executive board. Early signs are that McDermott is rising to the challenge. "There are indications the North America sales organization is executing better," says AMR Research analyst Jim Shepard.

An aggressive basketball player in pickup games at SAP America's gym (his grandfather, Bobby McDermott, was a star player in the 1940s), McDermott is Mr. Nice off the hardwood. "But that's what we need here," a colleague says. "Someone who's personable and able to get people excited."

When Morgan Stanley analyst Charles Phillips met with McDermott two weeks ago, he says, he found the CEO "more positive than I expected." But McDermott and SAP still have to translate good intentions into improved performance. For now, Morgan Stanley

isn't upgrading SAP's stock from its industry norm "equal weight" rating. Says Phillips, "We'll see what happens." --With Beth Bacheldor and David M. Ewalt

Photos of McDermott and Taylor by James Leynse/J Group