SAP to Shun Growth Through Acquisition Strategy

SAP's recently appointed co-CEOs say they are focusing on technological innovation as a way to get the company back on a path to revenue and profit growth, and they have no plans to try to imitate archrival Oracle by launching an expensive corporate buyout campaign. One major goal is to get updated versions of SAP's Business ByDesign software-as-a-service suite into more customers' hands on schedule.

SAP has no intention of getting into a merger-and-acquisition war with archrival Oracle as a way of increasing revenue or expanding the company, SAP's new co-CEOs said on March 15.

In their first meeting with the West Coast technology media, the two recently appointed co-CEOs, Bill McDermott and Jim Hagemann Snabe, said the enterprise software company would continue to focus on organic growth of its business and technological innovation.

SAP has no intention of trying to keep up with Oracle by replicating the multibillion-dollar spending binge by which Oracle has acquired over 40 companies large and small since the early 2000s, the co-CEOs affirmed.

"You can easily buy yourself growth in this industry," Snabe said. But in the case of Oracle, he said, the industry is "seeing lots of acquisition to build revenue growth, but very little innovation. We have done the opposite. We have tried to innovate" through product development in strategic areas such as business process management and through expanding business intelligence, data mining and data analytics, he said.

The only large acquisition SAP has carried out in the past several years was the early 2008 buyout of Business Objects for $6.7 billion. But Snabe and McDermott contended that this acquisition was closely targeted to supply a strategic customer need for expanded business analytics capabilities and to provide a platform for future innovation, rather than being a bid for short-term revenue growth.

In contrast to Oracle's acquisition strategy, Snabe said, SAP gives customers application integration and consistency that doesn't require "middleware to glue everything together."

However, McDermott said SAP wasn't ruling out future acquisitions, "If it fits into our strategy and helps build our relationship with customers." If an acquisition made sense, he said, "We would not shy away from it."

Snabe and McDermott replaced former sole CEO Leo Apotheker, who resigned on Feb. 7. SAP shook up its management in an effort to get back on track for improved revenue and profit growth after it reported a 12 percent non-GAAP (Generally Accepted Accounting Principles) decrease in operating income for 2009.

One of the major problems facing the co-CEOs is how to improve sales of SAP's Business ByDesign SAAS (software as a service) product. Business ByDesign is a suite of on-demand business applications that represents a new revenue stream and potential growth in the small and midsize business sector.

SAP has had to wrestle with significant delays in developing and rolling out the product to customers. However, Snabe and McDermott said SAP has gotten software development back on track for Business ByDesign by applying "Agile" software development techniques that enable highly focused development teams to produce high-quality software at a steady pace that meets schedules.

These techniques were implemented by two-thirds of the original Business ByDesign development team, which helped them produce "higher-quality software that was more to the liking of customers."

Snabe said the current release of Business ByDesign is on time and "of a higher quality than we ever imagined." These same techniques will ensure that Version 2.5 comes out on time later in 2010, he said. This will enable the software to go into production with more customers who want to use SAP applications on the Web.

John Pallatto

John Pallatto

John Pallatto has been editor in chief of QuinStreet Inc.'s since October 2012. He has more than 40 years of experience as a professional journalist working at a daily newspaper and...