On Tuesday February 3rd, 2015, I was lucky enough to be at the launch of SAP S/4HANA at the New York Stock Exchange. In the days since then, I’ve talked to customers, SAP folks, partners and consultants about the impact on their business.

My favorite quote of all was from SAP Chairman Hasso Plattner:

“If this doesn’t work, we’re dead. Flat-out dead.”

If you’d like to get straight to the chase, head over to SAP S/4HANA: What we must learn from SAP R/3: Part 2, Present & Future

Why was SAP R/3 so popular?

Before we get into the lessons learnt from R/3, let’s reflect for a few minutes on why SAP R/3 was so monumentally popular. Enterprise writer Josh Greenbaum writes it very well in his blog S4 HANA: It’s not R/3, and it’s not 1992 either (part I):

“Back in the R/3 days, SAP’s competition, to be blunt, sucked. Old, tired, unintegrated, mainframe-dependent, the enterprise software of the 1990s was a field ripe for disruption. And while R/3 had its share of issues, the bar was set pretty low for a successor to the likes of D&B Software and Cullinet.”

In the mid-90s, there were some phenomenal tailwinds to SAP R/3: consulting outfits like Andersen and Deloitte were looking for ways to make millions, the millennium hoax bug had CEOs paranoid about old systems, and there were purported huge payoffs by integrating back-office components like Finance, Supply Chain and HR into one glorified back-office system.

The ERP movement was born. SAP was in the right place at the right time, and it rode the wave. Organizations spent tens, and hundreds of millions on back-office rationalization projects, globalization projects, and SAP R/3, with its multi-currency, multi-language, integrated approach to development, and its vendor-agnostic approach to platform, destroyed all competition.

Consultants flew business class around the world, drinking champagne and racking up implementation costs that were often 5-10x the cost of procuring the software. Times were good.

SAP R/3 ran on whatever was the popular platform of the time. It ran on many platforms which have since been relegated to the history books: Compaq, Digital, Fujitsu Reliant, Sequent Dynix, Informix. It runs on all of the popular platforms of our time: Oracle, Microsoft, IBM and Linux. SAP’s open platform approach ensured that SAP R/3 was ubiquitous.

What did SAP get wrong in those 23 years?

Being the world’s largest enterprise software vendor is tough, and I think it would be fair to say, in retrospect, that SAP missed a number of trends, and then acquired its way into them.

First up was the Web in 2000. The second hand turned into the 1st January 2000, and the world didn’t explode. The internet, which had been quietly gaining popularity since the early 90s suddenly exploded, and the Dot Com Boom happened. This by and large passed SAP by, as former CTO Shai Agassi came on and tried to popularize a J2EE-based rewrite of SAP called NetWeaver. SAP briefly rebranded R/3 mySAP.com and customers – by and large – kept focussing on their global rollouts and supply chain optimization. Good quality web support for SAP came much later with the revised R/3, ECC 6.0 and Business Suite 7.

Next was analytics. SAP realized that operational reporting was a pain point for R/3 customers and built a dedicated system to support Management Information Systems, called SAP BW, in 2000. By 2005, BW was well outdated compared to its rivals like Business Objects, and extremely SAP-centric. SAP did the smart thing, and acquired Business Objects, but it was SAP’s first major acquisition, and the integration was extremely tough, both from a customer perspective (SAP lost a lot of the mid-market BO customers), a people perspective, and a technology perspective.

In 2008, I was told by our then commercial director, Michael Eldridge, that Mobile was the New Black. We worked with SAP on its new strategy, which started with the co-innovation with two Enterprise Mobility partners, Sybase and Syclo. Realizing that Mobile was core to its future business, SAP had the common sense to buy first Sybase, and then realizing that Syclo solved a workforce-management problem, also bought Syclo.

More than anything, SAP spent years rewriting SAP CRM, and all the while, Salesforce ate its lunch in the cloud. Workday followed suit with HCM, but by this time SAP had ejected CEO Leo Apotheker and in 2010 placed co-CEOs Jim Hagemann Snabe and Bill McDermott. This led to a new energy, and a bevy of acquisitions followed – first SuccessFactors, then Netbase, Ariba, Hybris, Fieldglass and Concur.

What did SAP get right?

SAP didn’t, by any means, get it all wrong. For a start, it remained focussed on its core business and remains the dominant enterprise software vendor.

Let’s not forget that under the leadership of former CTO Vishal Sikka, SAP built its own platform with SAP HANA. HANA is a truly next-generation platform, able to run in the cloud or on-premise, and able to support the needs of the largest companies in the world, both in mission-criticality and in volume and variety of information processed.

The lack of such a platform may in fact be the demise of Salesforce, which has invested in a 9-year, 9-digit (yes that’s >$100,000,000) platform deal with Oracle.

It’s also worth noting that since Jim and Bill took the helm in 2010 (Bill is now sole-CEO), the company has barely missed a quarter’s revenue and EBIT target, even considering incredible headwinds like the global economic crisis, political uncertainty in Crimea, economic uncertainty in EMEA and currency headwinds – not withstanding the customer move to the cloud and growth of big data solutions.

In addition, SAP has created a new market categorywith the Business Network – combining ERP with a global procurement network for commodities and human capital. The economic results of this network aren’t proven yet, but creating new market categories is key to future leadership.

What’s next?

We enter 2015 with SAP having built a new platform, a cloud capability and a new market category in the business network. But the IT market is continuing to move into the cloud with some pace, and it’s no longer just edge solutions like CRM and HCM.

Instead, we see core finance with FinancialForce.com and the beginnings of Supply Chain in the cloud with the likes of GT Nexus.

SAP has all the components from a technology and leadership perspective to provide a compelling value proposition, and this leads us back to NYSE on Tuesday 3rd February 2015. Bill and I happened to arrive together and talked for some time about the opportunity in the world today; it’s clear that we both believe that it is a brave new world.

This blog was intended to be a cautionary tale about such a brave new world, and a call to action for all SAP Customers, Partners and Employees. Unfortunately my introduction to that has run on for over 1000 words, so you’ll have to wait until next time for that. I hope this was an enjoyable read. If you enjoyed it, feel free to head over to SAP S/4HANA: What we must learn from SAP R/3: Part 2, Present & Future

P.S. Thanks to Oliver Kohl for his help getting this post up!

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3 Comments

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  1. Kenneth Moore

    A major theme of R/3 popularity you missed was the ability to customize the software by the customers and write their own reports.  They don’t have to pay a software vendor $900 to add a new column or parameter to a report.  Seriously, I was quoted something like that to make a small report change in the 90’s.

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  2. Nathan Genez

    The critics would quickly point out that SAP missed the switch to the cloud in part because of the success of their on premise applications.  But I haven’t seen a good plan proposed on how you migrate all of these processes to a different architecture and/or environment that is so different in the way that on-premise and SAAS are.  Probably the only way to do it is a complete break.  My concern is that S4HANA may not be a big enough break from ERP et al.  We will see.

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    1. Kenneth Moore

      Migrating from on-premise to cloud is like moving from a standard car to a hybrid or electric car.  The hybrid technology is cool and good for the environment, arguably, but I’m not saving money really switching to a hybrid car in the short term.  So why switch?  The customer must gain something to switch, like ROI or competitive advantage.  So much so that it is worth the effort.  Alternatively, they will wait until they need to upgrade, which is probably what most will do.  So have patience people!

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