SAP Faces Challenges

SOA Strategy and Management Issues are on the Table in 2007.

When SAP said Jan. 11 that its fourth-quarter and full-year 2006 earnings, to be announced Jan. 24, will miss analyst and internal expectations, company officials blamed much of the problem on a weak U.S. dollar.

However, some industry observers think the Walldorf, Germany, company is in the midst of dealing with myriad issues that will need to be addressed during 2007. Management—particularly with the impending retirement of CEO Henning Kagermann, whose contract expires at the end of the year—is in flux, and questions surrounding SAPs growing SOA (service-oriented architecture) are playing a role as well.

SAP also is making an aggressive push into the midmarket, which company officials say holds the greatest promise for growth. In addition, the company is hoping to triple its number of customers by 2010.

However, partners and analysts say SAP is on the right track with its SOA push and that later this year it will start paying off. In his blog, Joshua Greenbaum, an analyst with Enterprise Applications Consulting, likened the SOA-based shift at SAP to a tsunami, and this past quarters earnings shortfall to the low tide that signals the big wave is imminent.

"Customers want SOA and the other products and services that SAP can offer, and the pent-up demand is building to a crescendo that might take another quarter or two to be heard," Greenbaum wrote.

Aysin Neville, the new global SAP practice leader at BearingPoint, said SAP needs to do more this year to clarify the SOA message.

"There is definitely a need and a push from our side and SAPs side to adopt more of the platform," said Neville in McLean, Va. "2006 has been a good start, but its going to depend on SAP and their ecosystem partners to really push that out in 2007. I am not sure customers are really willing to [adopt the platform] unless they see business benefit, and I am not sure that was really articulated well. That is SAPs plans for 07. I dont think it really happened in 06."

SAP is shifting away from monolithic, closed applications to open, componentized, Web-services-based software with an underlying integration and development platform called NetWeaver. Late last year, SAP released MySAP ERP 2005, the starting point for companies moving to SOA, and the company is working on a SOA-based suite for the midmarket, expected in March.

SAP rival Oracle is going through a similar transformation with its Fusion road map. Still, more customers are committing to MySAP ERP 2005, said Rod Masney, president of the SAP Application Systems User Group, particularly since SAP said it would hold the core of MySAP ERP 2005 steady until 2010.

"Were seeing very positive trends in upgrades globally. People are moving and getting [SAPs SOA] message," said Masney, global director of infrastructure services with Owens--Illinois, in Perrysburg, Ohio. "A stable core to MySAP ERP is deemed as a positive. Were talking about the core of the business. Most customers run order-to-cash, accounts-to-reports, -purchasing-to-pay and plan-to-produce processes in ERP [enterprise resource planning]. It is one of those areas [where] you want reliability, stability, predictability."

A move to MySAP ERP 2005 at his own company is under discussion, Masney said. "Were on a global deployment of MySAP 2004. Stopping in the middle of an upgrade is challenging," Masney said. "But ERP systems are just like manufacturing. If you dont maintain them, you dont get all the benefits. We are looking at things like components of NetWeaver for now, just trying to weigh against our global rollout timing."

SOA Software, a Web services systems integrator, is another partner looking to increase its work with SAP. The Los Angeles company recently joined SAPs Enterprise Services Community and has achieved Powered by SAP NetWeaver certification, despite deep relationships with Oracle, Microsoft, IBM and BEA Systems.

Still the management issues could take a while to iron out. Its unclear whether Kagermann will accept co-founder Hasso Plattners expected request at a board meeting in February to extend his tenure as CEO until at least 2008. Two executive board members, Leo Apotheker, president of global field operations, and Shai Agassi, president of the product and technology group, have been mentioned as possible successors, but neither seems ready for prime time, according to observers. Apotheker, while strong in sales, marketing and the channel, has little in the way of technical expertise. And while Agassi knows the technology, at 38, he is young and relatively inexperienced, observers said.