Last week, SAP announced preliminary results of its 2011 fourth quarter financial performance and the results were impressive, exceeding analyst expectations for revenues and profits.  In Q4, software license revenues increased by 16 percent and total revenues grew by 11 percent.  Operating profit from a year ago is expected to increase by over 200 percent . Similarly, full fiscal 2011 financial performance was equally impressive prompting SAP senior management to declare that SAP delivered “the best year in its 40 year history.”

Upon review of the preliminary earnings release we noted statements indicating that growth in core applications business, increased momentum for analytics and mobile product lines, and accelerated growth of SAP HANA were each cited as growth engines.  SAP had established a 2011 revenue goal of €100 million for HANA, and has indicated that it exceeded that goal by €60 million. The company also exceeded its €100 million goal established for its mobile based applications, reflecting even more interest by customers in engagement type systems, empowering the user wherever he/she may be located.

Enterprise software companies have a tendency to perform creative allocation among internal revenue segments, thus we have to context SAP’s with some caution.  Also, many of the SAP HANA applications have experienced a delayed market entry and are just reaching customer release visibility and confined to certain non-mission critical application segments.  All that as an aside, the SAP performance is still impressive, especially when placed in context to the ongoing market battle with rival Oracle.  In December, Oracle surprised analysts with a disappointing fiscal Q2 2012 financial performance, indicating only a 2 percent adjusted growth rate in software license revenues.

For readers unfamiliar with HANA, it will become SAP’s answer to leveraging today’s advanced in-memory computing for areas such as advanced planning and predictive analytics.  In our Supply Chain Matters attendance at SAP’s 2011 Sapphire customer conference, we shared our belief that if successful, conversion of SAP applications and software infrastructure to take maximum advantage of in-memory technology would be market game changing.  Last year’s Sapphire customer conference provided a more detailed understanding of how extensive and far-reaching this objective really is, as well as the difficult technical challenges that SAP needed to overcome.  Subsequent SAP influencer focused events have lacked some details related to the future release schedules of HANA powered applications. At face value, the fact that customers are now beginning to buy into the potential of HANA is noteworthy.

From a supply chain and supplier relationship management lens, the real test for HANA focused applications is yet to come.  The initial test will be the long awaited Sales and Operations Planning (S&OP) powered by HANA application that is scheduled for initial customer release this quarter.  Supply Chain Matters has been attempting to secure a detailed briefing on this specific application. During his keynote address at the 2011 Sapphire conference, SAP father and Supervisory Board member Hasso Plattner declared that if he had his way, all of SAP’s business planning applications and specifically the SAP APO application should be the initial targets of further HANA enablement.  We were quick on the keys to “tweet” that statement in belief that SAP’s SCM and SRM customers take note of the implications of that statement.

We continue to believe that in-memory computing will have profound impacts in supporting future supply chain sourcing, planning, fulfillment, collaboration and decision support needs but customers will need vendors like SAP to actively integrate this technology within the existing applications, and not leave that burden on the shoulders of existing customers.

The preliminary uptake of HANA is indeed impressive but the real test will come in SAP operations and mission critical applications such as supply chain and supplier relationship management focused applications.

Bob Ferrari

Something interesting occurred this weekend, an announcement of an acquisition by SAP.  We note the term interesting because the announcement was made on a Saturday, a relatively non-news day for enterprise software companies in the U.S. as most people are busy with leisure and pre-holiday activity.  We were not even alerted by SAP Global Communications to the announcement.

In any case, the headline reflects SAP’s intent to acquire cloud-based human capital applications provider SuccessFactors for an estimated $3.4 billion. The deal includes an all-cash transaction and was priced at over 60 percent above SuccessFactors trailing 60 day trailing stock price and roughly 9.7 times current earnings.  The San Mateo California based company touts to have a Business Execution System that helps companies manage recruitment, assess human performance and accommodate other human resource process needs.   SuccessFactors boasts over 3500 customers and 15 million subscribers, a software licensing nirvana.  It also includes a rather top-heavy management structure for a mid-sized software services firm in the area of $400 million in revenues.

The deal comes on the heels of SAP’s October announced acquisition of Crossgate, a B2B cloud platform that helps companies to exchange data with their partners. Both announcements are sure raise more debates regarding SAP’s prior statements to follow an organic growth strategy.

It would appear that SAP has caught the HP tendency to significantly overpay in acquisitions, or is acknowledging that it needs to augment its current cloud services offerings.  A New York Times DealBook posting (metered view may be required) quotes a Forester analyst observing that the premium is an indicator of SAP’s struggle with its current cloud platform strategy along with its need to garner more future revenue from the cloud model for computing.   We tend to concur.

In its announcement, SAP indicates that SuccessFactors will remain an independent company, to be renamed SuccessFactors, an SAP Company. Of more interesting note, Lars Dalgard, the current CEO will be appointed to the SAP supervisory board and take on the broader role for providing leadership for SAP’s cloud business offerings.  Readers may recall a similar type of appointment when SAP acquired Business Objects in 2008 and its CEO, John Swartz was tapped to lead SAP’s business intelligence offerings. Swartz later departed SAP over presumed differences in strategy.

Supply Chain Matters wonders aloud whether SAP will be inclined to exercise further cloud related acquisitions in the specific area of supply chain, PLM and manufacturing management applications.

Bob Ferrari

Supply Chain Matters had the opportunity to attend SAP’s Supply Chain Management Summit meeting at SAP North America headquarters. The purpose of this day and a half  summit was to bring SAP’s current supply chain management applications customers together to share information and gain further knowledge on SAP’s various software applications supporting supply chain business processes.  In our initial part one posting, Supply Chain Matters provided commentary on the leadership change within SAP SCM.

We had the opportunity to attend a number of educational sessions during the Summit.  Here are some summary impressions.

A deep-dive session entitled Best Practices in Improving Supply Chain Response Management was rather interesting.  The session facilitators billed their presentation as an educational overview on the role and purpose of response management and stated up-front that the session would not be technical.  The audience however had other needs, and wanted more detailed knowledge on how the newly released SAP Supply Chain Response Management by ICON-SCM would specifically integrate with SAP’s APO and SNC and ERP ECC applications. What became evident is that integration to other existing  SCM applications is still a work-in-progress  What was mentioned is that the initial integration target involves Global Available-To-Promise (gATP).  Also mentioned was that in the interim, customers desiring integration of Response Management to existing SCM or other applications can do so on a custom project management basis.

A session summarizing all the changes incorporated in SAP APO Version 5.0 and 7.0 reinforced that APO customers need to keep abreast of changes, since a lot of enhancements continue to be added.  The key takeaway for APO users is SAP’s message that Release 7.0 provides the staple ECC core release, and that once customers move to 7.0, they will be able to henceforth take advantage of SAP’s less disrupting Enhancement Release Paks which promise to make future upgrades less disruptive.  Eric Simonson of SCM Solution Management demonstrated superb and detailed knowledge of various APO enhancements, and APO customers should keep Eric’s contact data on their smartphones.  One of the other most significant takeaways for SAP customers in life sciences and process industries is that APO has finally addressed comprehensive and detailed support for shelf-life planning, an issue that dates back six years. Supply Chain Matters would be highly interested in speaking with any SAP APO customer who has had experience with this newest shelf-life optimization technology.

There were a series of roundtable luncheons involving customers representing specific industries.  Supply chain Matters sat in on the Life Sciences roundtable that included representation of a broad cross-section of life sciences companies spanning generic drugs, proprietary drugs and pharmaceuticals, medical devices and other ancillary products.  The listing of hot topics and process challenges was quite comprehensive and by our count, the ones most emphasized included lean enablement, extended warehouse management, master data management and reporting, inventory optimization and response management.   To our pleasant surprise, we also discovered that SAP currently sponsors four different forums dedicated to the topic of supply chain tracking and serialization, which is another life sciences challenge given upcoming state and governmental mandates for supply chain drug tracking capabilities. Many life sciences companies are also moving toward extended contract manufacturing, which has added more challenges for visibility and process controls.

By our observation, the most widely attended customer sessions involved Newell Rubbermaid’s use of SAP APO to enhance its S&OP process, and Medtronic’s deployment of SAP Enterprise Inventory Optimization by SmartOps, one of SAP SCM’s other solution extensions.  A lot of learning and watch outs came from both of these presentations. Supply Chain Matters will provide additional comment in subsequent postings.

Overall the Summit was very educational, providing ample time for attendee networking, which is rather important in these times of social media.  Some attendees indicated that they preferred these smaller sized venues, as well as a location that was easy to travel to by automobile, train, or quick plane ride.

In the category of disappointment, was the lack of any definitive knowledge-sharing of how SAP’s ongoing in-memory HANA technology would play a role in SAP’s evolving SCM suite, especially SAP APO. At this year’s Sapphire, SAP Supervisory Board Member Hasso Plattner indicated that APO would be a top priority for HANA. The lack of any education or update was an opportunity lost.

Bob Ferrari

This week, Supply Chain Matters had the opportunity to attend SAP’s Supply Chain Management Summit meeting at SAP North America headquarters. The purpose of this day and a half  summit was to bring SAP’s current supply chain management applications customers together to share information and gain further knowledge on SAP’s various software applications supporting supply chain business processes.  It is part of an outreach program that involves various SAP Business Suite areas, where customers with similar interests can come together. The agenda featured a three hour deep-dive session in select SAP SCM applications including the newly announced Solution Extension, SAP Supply Chain Response Management by ICON-SCM as well as the newly upgraded SAP Transportation Management 8.0.  The most widely attended deep dive was that covering SAP Supply Network Collaboration (SNC).

Day two included quite a number of SAP customer presentations that shared their experiences and implementation learning on specific applications, and included roundtable discussions among specific industry players.  We will highlight our observations from attending certain sessions in a subsequent posting in this series.

In this specific post, we comment on a leadership change within SAP Supply Chain Solutions Management.  Hans Thalbauer is the new Head of Line of Business Solutions for Supply Chain Management, PLM and R&D. Hans replaces Lori Mitchell-Keller, who has now assumed a LOB solution management role for SAP Retail.  In our view, Lori did an extraordinary job of providing added focus and renewal to SAP’s efforts in SCM.  Her leadership in adding the response management solution extension to the product portfolio and for a renewed emphasis on SAP’s supply chain execution offerings is commendable and we wish her well in her new role.

Hans Thalbauer is no stranger to SAP SCM, having previously served in an SCM management role.  This author has had personal experience in working directly with Hans in my previous tenure at SAP, and I can assure the SAP SCM customer community that SCM is in good hands.  Hans was previously managing PLM solutions management, and his knowledge of that domain along with detailed SCM and manufacturing applications knowledge will serve him well. Hans can navigate the halls of Walldorf solutions development teams having resided for multiple years at that facility. He possesses an engaging style and sincerely cares about customer needs.

In subsequent postings, we will highlight some further impressions from the Summit.

Bob Ferrari

As this rather busy week draws to a close, SAP has concluded yet another annual Sapphire Now and ASUG conference. Supply Chain Matters has provided four separate commentaries direct from the conference and readers can reference each at the following links;

Commentary One

Commentary Two

Commentary Three

Commentary Four

In this final posting, we share our summary thoughts and impressions regarding 2011 Sapphire Now.

General observations and positive notes:

• As was last year, SAP obviously invested lots of production support money into Sapphire.  There was video coverage broadcasted live via the Internet, lavish production sets, live bands and talk show formats all expertly designed to present SAP as a world class, enterprise ready company.  That is an obvious positive since on the whole, there really was not a lot of hard news or product announcements generated by the 2011 Sapphire.
• As in the past, SAP’s blogger relations team (Mike Prosceno, Stacy Fish, Andrea Kaufmann, Craig Cmehil and others) performed admirably in providing each of us unfettered access to SAP executives and customers.  Most all of my requested interview requests were accommodated.  This is a world class team, setting the standard for all other technology providers.
• More than other years, supply chain messages, topics and implications were threaded in many of the talks, panels and keynotes.  We noted Hasso Plattner’s declaration that he believes that all of SAP’s business planning applications should be the primary target for rewrite on the HANA platform, and his specific mention of SAP APO as the number one priority. Steve Lucas addressed supply chain business intelligence requirements in his overview of SAP Business Analytics strategic direction.
• While on the subject of HANA, we continue to believe that if successful, conversion of SAP applications and software infrastructure to take maximum advantage of in-memory technology is game changing.  With this year’s Sapphire came a more detailed understanding of extensive and far-reaching this objective really is, as well as the difficult technical challenges that remain for SAP.  That for us is the real takeaway from 2011 Sapphire, what is going on behind the scenes. While SAP often declares itself as an innovative company, the true test of that statement really occurs in the coming months and years.
• Where 2010 was a focus on business reporting business intelligence, 2011-2012 has been characterized with a focus on operational focused business intelligence.  We trust that SAP will follow-through on that objective.
• The few supply chain related presentations seemed well attended indicating heightened interest by SAP customers.
• This year’s Sapphire included a novel micro-discussion format which we tended to like.  Attendees who are interested in the featured topic can attend, and the designated SAP facilitator can not use any PowerPoint or canned presentation.  The facilitator has to know his subject matter and be able to interact with attendees in responding to their questions.  These sessions were planned to accommodate 10-15 attendees, but those in the supply chain area were largely swamped. In one session, a hand count noted over 90 attendees.  We observed a session focused on the new RDS in SAP Procurement having a similar headcount, where two facilitators had their hands full.  The concept of a focus group discussion is great but perhaps the planning and execution will be improved for future Sapphires.
• It was good to note that the SAP SRM applications area has been granted a strategic priority by SAP senior management.  It seems that SAP will no longer tolerate penetration from various other best-of-breed providers in this space.  Expect more aggressive product initiatives as well as a potential acquisition in this area.

In the needs work or concern category:

• The technology gaps among where existing SAP customers are in their systems landscape and where SAP is headed is widening even more, and customers face difficult decisions as to strategic direction and budgets.  Keeping current with SAP NetWeaver, Business Objects and other technologies could be an expensive proposition and as noted, SAP has now put on-demand HANA on the table for long-term consideration. Now, more than ever, supply chain functional and IT teams within SAP shops need to insure close communication and collaboration with the office of the CIO.
• As noted, SAP’s move toward HANA has far-reaching implications particularly in the areas of supply chain planning, execution, response and business intelligence.  The big open question remains the overall timetable, which is, of course, multi-year in nature.  Also announced was SAP’s intention to move HANA to the cloud which has all forms of implications related to data security, response time, and the long-term presence of Business Warehouse (BW). SAP management acknowledges that more concise communication and timetable roadmaps are required to assist customers in their technology and applications upgrade timetables, and we trust that this area will be on particular focus for the remainder of 2011.
• We were disappointed in the continued lack of clarity regarding SAP’s efforts to develop an sales and operations planning (S&OP) support application that leverages HANA capabilities. In the interim, SAP customers are left with an existing sub-standard S&OP support application that requires far too many dependencies on other applications to manage an overall process.
• We remain concerned relative to ongoing synergies among SAP SCM, PLM, Manufacturing  and SRM solution development teams.  After being previously unified, SAP SRM is once again independent with its own set of priorities and strategic deliverables.
• We were somewhat disappointed in customer adoption numbers of SAP Business by Design, SAP’s thrust to support small and mid-market company needs. Accumulating just 500 customers to date, we would have anticipated that this application suite would have far more numbers of adoption.  This is another obvious area of emphasis for SAP in the coming months.

During their keynote presentation, SAP Co-CEO’s Bill McDermott and Jim Hagemann Snabe stressed that SAP continues with the belief that customers have the right to have trusted partners, and that SAP must constantly earn its seat at the table.  In the past, SAP had sometimes embarked on initiatives that were better for SAP’s bottom line. With the declared objective of in-memory computing and HANA, SAP is embarking on a massive objective with far reaching implications.  The open question remains whether customers and supply chains will discover compelling value in these efforts.

Bob Ferrari