Bill McDermott, CEO of SAP America Inc., has taken on whats been seen as a difficult position as CEO of the U.S. subsidiary of the largest software company in the world—and one that has a very strong German heritage and leadership. With a revolving door at the CEOs office over the past few years at the U.S. headquarters, there were few expectations when McDermott took the job 18 months ago.
During that time, however, the CEO has been working quietly to change SAPs internal skills base and to evangelize the companys newest technology, NetWeaver.
McDermott recently talked to eWEEK Senior Writer Renee Boucher Ferguson about the technology direction for the company and about some of the work hes done in his nearly 2-year tenure at SAP America, in Newtown Square, Pa.
Whats the technology direction for your company, particularly with the introduction of NetWeaver?
What we do is quite unique. The technology is not the same as [that offered by] anybody else.
We have 9,000 developers who actually receive about $1 billion on a per-annum basis to continuously improve that which weve already done, but also to innovate. And what was once a great ERP [enterprise resource planning] company is now ERP, CRM [customer relationship management], SCM [supply chain management], PLM [product lifecycle management] and SRM [supplier relationship management], all in one holistic, fully integrated business suite.
But because we live in a world where customers are not necessarily ringing the phone off the hook, saying, I only want to do business with you, you have to be open, and you have to be completely agile in relation to your acceptance to other technologies, because companies have spent billions of dollars on IT, and theyre not just going to chuck it all out the window.
NetWeaver is an enabling integration technology that essentially allows SAP applications to work harmoniously with each other, but more over, because its a Web services architecture—and the only one of its kind in our industry—it also enables complete, unfettered access to all the other systems as well.
The big breakthrough is youre now in a world, because of NetWeaver and how its changed the game, where you can essentially dramatically reduce your total cost of ownership. How they do it is about 85 to 90 percent of the IT spend in most companies today is tied up in legacy applications, legacy infrastructure, legacy systems. [This] means that only 10 percent—ten percent—[of IT spending] actually goes towards innovation and change to actually do work differently, to impact the business processes and impact the outcomes of the company.
What NetWeaver enables us to do is go in and attack that legacy spend and essentially say, look, [what] if we automate these business processes. No one knows more about the industry business processes than SAP; weve been at this 32 years and we have 28 industries inside and out, so we have the best practices, 22,000 customers in 66,000 installations around the world built in to the application. So if you take a scenario in an industry as a best practice way of doing, lets say, order-to-cash, you already know the scenario on how the best businesses actually execute that best business practice.
Now the question is, from a customer point of view, are your systems able to execute at the benchmark level? If no, well OK, what can we do to change. What you basically do is you go into that 85 to 90 percent of the legacy spend and you eliminate stuff, or you consolidate stuff.
For example, its not uncommon for us to walk into a company today where they have thousands of interfaces, thousands of connectors, thousands of relationships that they dont need. With our application suite, and NetWeaver, we not only focus on what companies should do, but we first eliminate what they shouldnt do any more. And we free up that cash flow that they used to spend on legacy, into innovation and transformation of the business processes.
The Pace of NetWeaver
Are companies [transforming their business] by going in and redoing business processes, or by taking out old systems and putting in a NetWeaver platform?
Its always a simultaneous discussion, so on one hand is the application layer, you change the way the knowledge worker does their work. You give them some productivity advantage. It could be a portal, could be all the user-based roles they should for that job is found in that portal—they have access to knowledge information and they could essentially do everything they need to do right in that portal. So you are changing the way the knowledge worker works, and thats at the application layer.
The second thing that youre doing is youre getting the technologies to interoperate with one another, and thats where NetWeaver comes in. So as you find quickly when you interoperate technologies, you eliminate by changing that application layer and business process, technologies you dont need anymore.
For example, a well-known oil and gas company we are working with is taking out $259 million each year, for the next five years, by eliminating thousands of interfaces, thousands of connectors and literally hundreds of maintenance contracts that they dont need anymore because they have the application suite from SAP, powered by NetWeaver.
So what NetWeaver does is not just on the technology side, but on the business side it gives you a business case thats iron clad because the problem has that most customers have today.
A business going in and changing a business process, or several business processes, can actually be quite a lengthy and in-depth experience between mapping, modeling and implementing. So are you saying these folks are going through the whole modeling process at the same time they are implementing NetWeaver?
Yes. Some of our secret sauce is cutting down the cycle times. So, if your perspective is [that] you have to study the information technology landscape, you have to analyze your business processes within the landscape and you have to realign those business processes to a new way of doing work on your application platform. And then you have to go through an arduous process of deciding which connectors come and go, to map into NetWeaver to take the cost out. So, youre right.
But, the difference is we have upgraded the skills, knowledge and attributes our workforce so dramatically over the last 18 months that we actually have business consultants, system integrators and architects on staff and finance experts that collaborate around the customer requirement for this business case.
The process that used to take months is now taking weeks. This is critical. Because once customers realize the power of this innovation they want to get it done yesterday, so no longer are you on a please believe me, I can help you, cycle, youre in a wow, this looks really good. How quickly can you get this done, because my ROI is substantial and the faster you execute the more I start to save and the quicker I start the savings. Its a whole different conversation.
How important is it to move those R/3 users that are still out there onto NetWeaver?
Its very important … in two ways. One is I would say R/3 to mySAP ERP, which is the updated application from SAP, not only has financials but it has HR, operations management, strategic enterprise management, analytics. [mySAP ERP] has a lot in there that the R/3 product, as great as it is, doesnt have.
The second piece of that is it comes with NetWeaver, so now youre getting a portal-based technology, youre getting full analytic capability, and you have a way to manage your data in a centralized repository so you can truly predict and execute on its accuracy. And you now have enabled a Web services architecture in your company where youve harmonized your SAP with all the other IT investments that are still relevant that you still want to use. And at the same time, youve eliminated a whole bunch of bad cholesterol from the equation. Good cholesterol, bad cholesterol—take out the bad stuff.
Questions Over R
/3 & BusinessOne”>
At CeBit, SAP will talk about a new license model for either maintaining R/3 or moving forward. Any other incentives there to move those folks along?
Sure, a couple of things. First of all, were all about these customers being absolutely excited about doing business with SAP and I really want that to come across. Weve worked so hard at it.
In fact, the customer satisfaction weve got going in North America is the highest in the world, and were very proud of that. The reason for that is we are working with each customer, one customer at a time, on this upgrade conversation.
There are two components: Component number one is to bridge their maintenance strategy appropriately. Number two is to trade them up to the mySAP ERP upgrade, which nine out of ten of them want to do.
Step number three is to finalize the business case for each one of our customers. We really studied the nuances and payoffs of this new technology, and now were executing across North America and Canada right now. I speak for North America—Im just the guy for North America, a little piece of the action here.
With the introduction of NetWeaver how do you see the company in five years—as an ERP company, an infrastructure company, an integration company?
I see [SAP] as a business solutions software company which includes the technology and the integration enablement for these business solutions. So its not an either-or [situation].
Were still going to be the number one software company in the world. Youll have an enabling integration technology built on a Web services architecture thats going to lead the way into a new future, and you will have open standards and scalable standards around a technology layer. [Customers will] not only leverage what SAP can bring to the party, but you also leverage your partners into the solution equation—so youre hitting it on all three fronts.
Do you see NetWeaver as a new technology for the installed base or as in integration technology for non-SAP users as well?
Both. Its a huge enablement device for the installed base and a spearhead into the competitors installed base.
How much of your effort is getting into the installed base?
The reality is we have an interest in doing that, but our current strategy is a little more thoughtful than that. What were trying to do is were trying to market intelligently to large enterprise, mid-market and small and medium sized business customers.
What we want to do, whether its an SAP or non-SAP customer, is bring solutions that are relevant in those market segments and that are specific to 28 different industries, and are sized in the appropriate way for the buying behavior and those various segments.
For example, in the SMB account there are 1.5 million addressable establishments in the United States. They may not be ready for the whole NetWeaver conversation, because they may not have all these disparate systems where that integration conversation is going to be the tip of the arrow. But yet, theyll like [the vision] because they are going to grow up and become more complex over time. They clearly want an affordable solution thats out-of-the-box at an affordable price, that will help run their business better, that they can get immediate time to value on. So, its up and running and theyre off to the races. Two years ago we couldnt do that. Today we have a great solution
You mean BusinessOne?
Thats BusinessOne. And we also have a great solution by our reseller channel in the mid-market. A customer in the mid-market will typically say, look, I cant get my orders out the door fast enough, and therefore am not collecting enough cash, and my days sales outstanding are going through the roof. Can you help me?
Whats really neat is to watch the transformations going on—and the answer is, of course we can. We can specifically for the high-tech-manufacturing industry provide you an order-to-cash solution for this amount of money, [that] can come out of the box and be fully functional. [We] can have it up and running in this time frame and you can have your ROI back in your pocket in six to nine months. Thats how detailed these conversations can be now. Could we do that a year ago? No.
How much business are you getting with BusinessOne?
In relative terms, its still a small percentage of our overall sales. But it is growing at a 40 percent clip on a year-over-year basis.
The other thing is our large international customers are also telling us their satellite locations like the flexibility of BusinessOne, because its fully integrated with SAPs ERP, or Business Suite, and can offer an affordable option for satellite locations. Small companies like it, mid-sized companies and/or large companies will often use it.
Oracle and Other Competitors
Do you still consider Oracle, PeopleSoft as your only competitors, or do you see infrastructure providers as becoming more your competitors?
I can give you the definition in my way on the market. First of all in the enterprise application software market, if you consider SAP, and our top five branded competitors, we have a 59 percent share of that market.
So, in that market, Oracle, PeopleSoft, JDE, Siebel, i2—you have your likely suspects. If you broaden the conversation, and by the way, whats interesting in that market is Siebel, who did very well two, three years ago—theyre collapsing at the seams. Their market share is down in double digits year-over-year.
The world has decisively said, no to best of breed. Stay away from us. We cant handle the interfaces, we cant the integration, we cant handle the consulting costs, we cant handle the fact that you dont have a fully integrated solution. When another one is available, why would I ever choose you for goodness sake?
You cant blame them. So thats that space.
But if you broaden the definition, well, of all the applications companies that are out there—because theres hundreds, if not thousands of them—what is your share?
We have an 18 percent share of that market, of the whole universe. The next closest [competitor] would be in the single digits.
As for the BEA and some of the EAI companies, I consider them not to be competitors. I do consider them potentially getting into more of a marginal role in some of our customer establishments because of NetWeaver. Because if you can have the application stack, as well as the integration stack all come from one solution provider, why do business with a whole bunch of other companies? Whereas those companies grew up, especially some of the EAI companies, very fast, based on best-of-breed technologies stitching this stuff together. As companies now switch to a more integrative perspective, I think they are going to be looking for the integration layer along with the application layer in one simple solution.
I know SAP has said it is supporting Oracles view of the market—and not necessarily Oracle. Have you done anything specific with the Department of Justice? Are you going to be part of the trial?
In terms of the DoJ, any matters related to the DoJ, well refer to Bill Wohl.
The Oracle matter, just to be clear on that, the 59 percent definition I gave to you is the DoJ definition basically of the marketplace—SAP and just a few other players. The 18 percent is the broader universe of application providers.
We werent saying we support Oracle, we were saying we support the broader definition of the market. Because as you said, there are going to be new entrants and big brands in certain segments of the market. And there are going to be evolving players over time. So, just to limit it to the top two doesnt seem to make a lot of sense in terms of how you define the market.