SAP says it is hurting

[Jane B]

By Nick Farrell8 October 2008

German business software outfit, SAP said that it is suffering badly from the economic downturn.
SAP said it saw a sudden drop in business at the end of September as global financial turmoil escalated.

Henning Kagermann, the co-chief executive of the company, said market developments of the past several weeks have been dramatic and worrying to many businesses.

He said that SAP was not immune from the economic and financial crisis that has hit the markets in the second half of September.

The company expects software and software-related service revenues for the July-September period to be between US$2.66 billion to US$2.67 billion.

This is an increase of more than 13 per cent from the third quarter of 2007 but well down on SAP's predictions.

At least SAP can be happy that its rival Oracle also predicted software sales growth of only five per cent percent to 15 per cent in its current fiscal quarter.
theinquirer.net (c) 2008 Incisive Media

[admin]

It's good to see Gartner offering some commonsense to this (see the last paragraph).

Invest in the bust

Cynthia Karena
The Age November 18, 2008

There are opportunities at all stages in the economic cycle but investing in IT on the cusp of a recession will help organisations prepare for the upturn. "A slowing economy creates more opportunities for companies to move to a leadership position than at any time in the business cycle," SAP's Peter Sertori says.

And SAP Business intelligence director Ian Parker pitches a recession as a good time to analyse costs using appropriate software tools. "A lot of organisations are looking for business intelligence tools to analyse the effect that fuel costs and the exchange rate have on profitability; every tweak has an impact."

And it's a good time to improve efficiency, says John Frisken, managing director of Information Systems Group technology consultants. "Workflow tools produce operational efficiencies and (automate processes)."

Project and portfolio management tools allow CEOs to see which projects are taking place. They can prioritise where investments are directed."

The future will increasingly be about compliance, he says."
The government will come down on the finance industry like a ton of bricks, which could cause a lot of disruption to businesses that aren't prepared."

Workflow tools can be harnessed for risk management and compliance, to make sure that an organisation is keeping all documentation and is doing all necessary compliance checks."

But Neil McMurchy, a research director at analysts Gartner, says that most companies have already invested in the technology; they just don't know how to exploit it."
Take the time now to make your IT assets work harder for you. It's not costly, it just requires focus."

[Doug Heywood]

From Computerworld comes a different story about SAP. Perhaps the pain is self-inflicted?


Enterprise software in 2009: Opportunities, risks
Industry insiders share tips on getting the most out of enterprise software in 2009.

Chris Kanaracus (IDG News Service) 23 December, 2008

Enterprise software is sure to remain a buyer's market during the economic downturn next year, but assuming you've got a budget, be careful to avoid boondoggles while in pursuit of a bargain, say analysts, consultants and IT executives.

Pointers from industry insiders for enterprise software in 2009 include:

Buy if you can, but don't go overboard

"It's almost self-evident that software vendors right now want to close deals," said Frank Scavo, managing partner of Strativa, an IT consulting firm in Irvine, California. "Buyers are probably in the strongest position they've been in years. The balance of power has shifted considerably."

One IT executive said the rocky economy is clearly providing him with a strategic advantage.

"Vendors are doing everything they can to gain our business," said Mykolas Rambus, CIO of Forbes Media. "As far as technology spend, we're certainly making prudent cuts. But at the same time, we're plowing money into areas we think generate ROI." Those areas include e-commerce and data warehousing, he said.

Software companies are willing to deal because it is "a matter of having a dollar in hand versus a dollar in the client's hand," said Eliot Arlo Colon, president of Miro Consulting, a Fords, New Jersey, company that advises Oracle customers on license purchasing.

Colon is predicting that Oracle, seeking to cash in on its "shopping spree" of acquisitions over the past few years, will heavily discount licenses for some products, such as content management and BI (business intelligence), in 2009.

But the company won't offer deeper discounts on products like its database, Colon said. "They just feel they have the stranglehold on the market."

Whatever happens, just because something is cheap doesn't mean you need a lot of it, Scavo said. "You don't want to overbuy software that's just going to turn into shelfware. You'll just end up paying maintenance on it."

Examine software maintenance costs

SAP's decision in July to move all customers to a richer-featured but costlier software maintenance plan -- resulting in an outcry from some customers -- could have a lingering effect, Scavo said. "I think it's caused buyers in general to start paying more attention to maintenance fees."

There's no clear sign that many more companies will follow the lead of companies like Rimini Street, which provide third-party maintenance at lower rates than vendors.

But these companies are already making an impact, said technology purchasing consultant and bloggerVinnie Mirchandani.

"The thing about third-party maintenance that people do not often realize is just its presence/threat forces a lot of discounting from the source vendor," he said via e-mail.

A number of large outsourcers also provide maintenance "on the quiet" for customers, according to Mirchandani.

"Overall, software maintenance pricing will be under even more pressure next year," he added. "Not just SAP, by the way. [It's] not surprising -- few markets, in tech or elsewhere sustain 90-percent-plus gross margins for more than a few years."

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The city of Flint, Michigan, signed a third-party maintenance contract with Rimini Street several years ago for its PeopleSoft human resources application, said database administrator Tom O'Brien.

O'Brien so far has "never had a problem" with Rimini Street and the company's support staff is extremely responsive, he said.

Customers who are considering third-party maintenance but skittish about the potential quality of service should ask the firm for a work sample that could be applied to a test system, according to O'Brien. In Flint's case, it was a tax update for PeopleSoft, he said.

Rimini Street says customers who switch will save at least 50 percent off their current maintenance charges.

Other third-party maintenance companies include netCustomer, which supports JD Edwards, PeopleSoft and Siebel.

Venture carefully into SaaS contracts

The growing maturity of SaaS (software as a service) applications may inspire more companies to consider products from the likes of Salesforce and NetSuite, hoping to gain the oft-vaunted cost savings of the delivery model.

Forrester Research analyst Ray Wang predicts that SaaS vendors may trend toward offering month-to-month subscriptions. "Companies want to lower the barrier to entry and avoid the perception of lock-in. This also allows companies to explore strategies before they commit," he said via e-mail.

Customers who do choose a SaaS product should make sure they have an "escape plan," Scavo said.

For one thing, a customer can potentially maintain on-premises software themselves, eschewing vendor-provided maintenance, but this isn't feasible with a SaaS model, he said.

Therefore, SaaS contracts should allow customers to move onto an on-premises version of the software, if one exists, or provide an easy way to extract user data and move it to another system, according to Scavo.

"Prepare to get out before you get in," Scavo said. "I don't think customers think enough about that. It's kind of like a pre-nup. Nobody plans on getting a divorce, but if you're smart you're going to plan how to do this."

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Don't cut too much, if possible

Peerless Clothing, a large tailored clothing manufacturer based in Montreal, has decided to hold off on two major projects -- replacing its warehouse management system, and an SAP upgrade -- said Joffrey Bienvenue, IS infrastructure and operations manager.

Not every project has been frozen, "but the big ones for sure," Bienvenue said. "If it implies spending more money, most of the time it's on hold."

While the economy is unquestionably taking a severe toll on IT budgets, businesses have to be careful about what to cut. "I think there's a danger of reacting in the other extreme, which is to cut initiatives that are going to be strategically important for the business," Strativa's Scavo said.

In addition, a company's end users may not be as busy as usual, potentially making it easier to push through IT changes, he said.

Bienvenue echoed this notion in part.

"When the business is requesting a lot of projects and you're spending a lot of time on them, lots of stuff at the infrastructure level gets deferred," he said. "This situation can give the infrastructure team time to wrap up some things that were lingering."

Rambus, of Forbes Media, said there is an opportunity -- and even a responsibility -- for IT executives to make sure technology supports core business needs in 2009.

"If anything, this should be the year that alignment becomes a non-issue. Nothing in IT should happen without it directly impacting the business," he said. "The organizations and the executives to which IT reports are more focused than ever on reducing costs and getting positioned to proceed in the future. Anyone's who's not doing that? They're going to find they're extinct pretty fast."

[JohnG]

I've just read in the NZ National Business Review that locally growth was very strong for SAP:

Survivor: SAP – Australia, New Zealand star in software giant’s global results
By Chris Keall | Friday January 30 2009 - 07:12am
SAP’s ANZ division has recorded the business software maker’s strongest revenue growth of 2008, insulating it against coming lay-offs.

Strong growth in retail, public sector utilities – and, in Australia, mining - saw SAP ANZ record overall revenue growth year on year of 33% in constant currency (24% growth calculated in Euro).

By country, overall revenue grew 36% in Australia and 22% in New Zealand. Software Licence revenue grew 79% year on year in Australia and 20% in New Zealand.

“It’s no secret the economy was sluggish for most of 2008, even before the global financial crisis hit in September. The New Zealand economy was already in recession by the second half of the year,” says Tim Ebbeck, managing director SAP ANZ. “In this environment, cash is king and process efficiency is the next best thing to growth for delivering profitability.”

Mr Ebbeck says SAP recorded four of its biggest ever deals during the year.

Yesterday, German-based SAP – the world’s third largest software company after Microsoft and Oracle – reported an 8% rise in profit and 13% rise in revenue for its latest quarter.

Yet the company also said it was battening down for tougher times ahead, and announced it would cut 3000 staff worldwide. SAP has yet to detail where the cuts will come, but if the top performers are the least likely to be culled, its ANZ staff are better positioned than most.

"SAP is working through the implications of the global headcount reductions for ANZ. They’ve [ANZ] had a very successful 2008, so they’ve done what they can to ensure any impact from the global slowdown is minimised," a rep for the company tells NBR.

[Steve Bennett]

Thanks for the last post JohnG. Here is something published recently with SAP's local CFO talking strategy:

Value Challenge
Richard McLean - CFO - SAP Australia

SAP

Richard McLean
Business-to-business suppliers can expect cost-conscious customers to look even harder at major investment decisions. For SAP Australia’s CFO Richard McLean, this means the company needs to secure revenue streams by demonstrating value to customers, continue to seek economies of scale in shared services, and use the new opportunities for cost reduction technology continues to provide.

ceoforum.com.au: What will be the relative importance of cost management compared to other strategic priorities over the next 6-12 months?

Richard McLean: It’s probably more important than it has been for some time. Given the uncertainty there is in the market at present, we are very focused on every dollar that we are spending, and want to make sure we get the best possible return on every one of those dollars.

A key priority is to understand the changing needs of our customers, along with more effective quarterly Sales and Marketing execution. Of course at the global level the longer term planning and product development continues, but our local emphasis is very much on how we are traveling on a quarter-by-quarter basis.

There has also been a change in terms of what type of growth we expect to achieve. The emphasis going forward is going to be on quality and sustainable revenue streams, where revenue growth has to be achieved without necessarily increasing your cost base.

ceoforum.com.au: How do you see the local Australian market, and how does it differ from the view that the company may have of the global market generally?

RM: I think things are more difficult in other parts of the world than they are in Australia. In all my discussions, both within the company, and with professional peers, consensus seems to be that we will not be as badly hit in Australia by the global economic down turn as, say, the US or Europe. The fundamentals of the local economy are proving to be stronger.

I also think Australia has the advantage of being part of the Asia-Pacific-Japan region, which is regarded as a high growth area. When the company is looking at Australia’s market opportunity, they do so in the overall context of Asia-Pacific, including high-growth markets like India, China and South East Asia. In recent times Australia has certainly held its own in terms of growth with these other markets, despite being relatively more mature.

Ultimately, you can’t get obsessed with things you have no control over, like the global economy. We need to focus on what we can control and influence.

ceoforum.com.au: Your local revenues are largely made up of software sales and services. How vulnerable do you believe these revenue streams to be in the current environment?

RM: The key to our revenue health is continued software sales, as the majority of our consulting and support services are delivered in the context of implementation or support following a license sale. We don’t gain a lot of our revenues from ‘standalone’ services as such, and therefore we are not really vulnerable to, say, the deferral of major business improvement projects in the way that certain other professional services companies might be.

That said, how well our software revenues hold up depends on how well we can meet the challenges of the current environment. Making sure our customers continue to see the strategic importance of our products is critical. We need to be able to clearly articulate the business benefits of continuing to invest in technology, to achieve operational and productivity improvements.

ceoforum.com.au: Given that customers are looking more closely at major investment decisions of all kinds, what can you do as a supplier to respond to that? Is it a matter, for instance, of changing the cost mix to place a greater emphasis on sales and marketing?

RM: We’ve responded by being even more focused on articulating and demonstrating value. Companies don’t buy software, they buy business outcomes. More than ever, a rock solid business case is critical.

We use a process called Value Engineering that enables companies to assess where they should focus their spend, clearly articulates the dollar value and then provides a path to realise that value. Value Engineering has been a critical factor in a number of large projects that kicked off in late 2008.

The other aspect we talk about at SAP is ‘outrageous customer service.’ Our business model has always been about our account executives and support staff having a strong understanding of our customers’ needs, and thus being able to sell them real business solutions rather than just software products and services.

So for us it’s much more than investing additional money in, say, some new marketing campaigns.

ceoforum.com.au: What are the major cost management initiatives you are taking, or are going to take in the near future?

RM: I think now is the time to simplify and standardise operational processes and focus on core activities. We will be seeking to better leverage the global resources we have within SAP for sure. Make more use of our Global Shared Services, Global Procurement and Facilities Management, for example. That is an ongoing process, and there is always a lot of work in refining processes and developing sufficiently detailed service level agreements with suppliers and service providers to make this work. This, of course, applies whether the provider is external or internal to the company. The key is to build strong, partnership based, relationships with a number of strategic suppliers for long term mutual benefit.

ceoforum.com.au: How do you see the scope for cost reduction now, as compared to, say, the last major downturn in 1990? One argument is that many companies today simply don’t have the low-hanging fruit for cost reduction that they might have had twenty years ago.

RM: That may be true, as many companies have, over recent years, developed leaner and more efficient business processes in order to compete. Most companies have had little choice but to innovate and be more efficient.

At the same time, however, the rate of change in today’s technology and innovation continues to accelerate and provide further options to reduce costs that we simply didn’t have 20 years ago, with things like business process outsourcing, digitisation, and other enabling technologies. Not to mention the ability that many more companies now have to act globally, grow through acquisition, and maximize economies of scale to bring down costs.

Another point here is that, in all the conversations I have had internally about the need to manage costs carefully, I have not found anyone who fails to see the point! There is a very broad recognition within the business that this is needed, something that may not have always been there in previous downturns. That is the upside of the speed with which information now travels: the current downturn has been, and will continue to be, reported in a very comprehensive fashion, and people are incredibly well informed.

ceoforum.com.au: What do you see as the most important things for a CFO to get right to successfully manage costs?

RM: Good business intelligence is vital. You have to have the tools that give you transparency into what’s happening in your business. Many businesses are far more complex than they have ever been, having grown both organically and via mergers and acquisitions. This makes it all the more important to have a good understanding of your markets, your customers, and how the dollars you are spending are impacting on your bottom line. If you do not have quality, real time information you will make bad decisions.

Another important ingredient is the need for strong financial control processes that give you transparency and visibility into all aspects of your business. Clearly defined and enforced policies supported by delegated authority levels around procurement and capital spend are really important.

The original article is here on the CEO Forum Group.

[admin]

From Inside SAP Magazine:

Oxygen thrives despite economic climate
12 Feb 2009

by: By Kate Morgan

Oxygen has continued to report a ‘solid pipeline of SAP work opportunities’ despite the economic climate. Reported today, Oxygen Business Solutions states that although there has been a definite slowdown in some of the core sectors, primarily natural resources and manufacturing, Wayne Pohe, General Manager of Oxygen in New Zealand says, “We are still seeing demand for SAP projects despite this.”

“While we would expect the economic climate to put the brakes on new assignments, companies are aware that both the New Zealand and Australian governments are preparing to inject money into infrastructure projects in order to keep the economy rolling, Pohe says.

“Some large manufacturing and services companies realise that now is the time to go on the offensive and are embarking on system updates as well as business processes improvement in order to capitalise on the new work when it arrives.”
New Zealand resources are being deployed based on the roll-out of the SAP template for L’Oréal New Zealand. This is subsequent to the success of the SAP upgrade for TVNZ which was rolled out on time and on budget.

“Oxygen’s implementation of L’Oréal’s global SAP template for their Australian business was regarded as one of the most successful worldwide and we are now following that formula to streamline its processes and improve control over sales and distribution for its New Zealand businesses,” Pohe says.

Oxygen in Australia has also engaged several new customers in 2009.

Oxygen’s General Manager of Sales, Paul Kruger says, “The market is contracting in response to the current climate, but Oxygen remains engaged. We have recently won two new projects from the utility sector; an SAP upgrade for Macquarie Generation, Australia’s largest electricity generator, and a new SAP implementation is about to begin for LinkWater, the bulk water transport authority for Queensland.”

This is furthered in a Oxygen’s statement released this morning, ‘Oxygen’s federal government work remains buoyant with a phase one SAP business case and future roadmap project underway for the Department of Foreign Affairs and Trade in Canberra, as well as an SAP Business Intelligence project for the Bureau of Meteorology in Melbourne.’

[Steve Bennett]

Fran Foo | March 03, 2009

ENTERPRISE software giant SAP has made less than 40 jobs redundant in Australia following a global directive to reduce employee numbers.

SAP Australia spokesman Peter Sertori said affected workers were informed towards the end of last week.

SAP employs 550 people in Australia and New Zealand, he said.

"The action in Australia affected less than 40 people.

"Most people left at the end of the week but there are few who are working on projects so there will be a notice period for them," Mr Sertori said.

All lines of business were affected including SAP consulting and training.

The move follows an announcement in late January that SAP would reduce its global workforce by 5.8 per cent or 3000 jobs to 48,500 workers.

Mr Sertori said there were no immediate plans to announce more cuts but any decision would depend on how the economy fared.

The company had to announce redundancies despite recording a stellar 2008 in Australia with a 72 per cent software licensing growth over the previous year.

New wins in the past 18 months include a string of high-profile companies such as 7-11, Australia Post, Commonwealth Bank, Origin Energy and Victoria Police.

Last year in the midst of its merger with Business Objects Australia, some employees were let go. Its managing director Rob Wells left the company towards the end of the year.

The unit is now known as SAP Business Objects Australia and is run by Rajeev Mitroo.

As reported in The Australian today, Mr Mitroo said that local redundancies for ex-Business Objects staff were in the single digits last year.