A Look Back at Jon Reed's "State of the SAP Market" 2002
Where Do We Go From Here?
A Look Back at Jon Reed's "State of the SAP Market" 2002

Where Do We Go From Here?
A Look Back at Jon Reed's "State of the SAP Market" 2002
Part One
February 25, 2002

It's not an easy time to be an SAP consultant. The contract market has gotten much tighter as companies pull more work in-house and postpone major SAP upgrades. By now, most of us thought that we'd all be working in sexy areas like BW, APO, and SEM. But we're still waiting for the major installations that will fuel consulting demand in these new areas. Caught between the old back office ERP work and the new e-business work that has yet to emerge, SAP consultants are asking themselves some tough questions: "Do I stick with this bread-and-butter work as long as I can?" "Do I keep pushing for new mySAP certifications, or do I quit on independent contracting and take whatever perm job I can find?" "Is now the time to give up on SAP entirely?" "Are the hot rates of yesterday gone forever, as I always suspected they would be?"

The SAP career crossroads can be a lonely place, and clearly, the overall economy is not making the situation any easier. We're in choppy, unpredictable waters - one day the shoreline of economic recovery is clearly in sight, the next day it's obscured by an Enron debacle or some other unwelcome development.

Most of us thought that as soon as SAP finally delivered the right e-business functionality, we'd be on our way. But rudimentary early versions of products like BW and APO have evolved into robust releases with powerful back office integration, and companies still aren't buying. So what do we do? Do we stick with where the jobs are now, or do we keep holding out for these new consulting markets to develop?

There are no easy or definitive answers to these questions, but they're all important enough to warrant a full-fledged inquiry into the state of SAP, so that's what we've prepared for you here. We recently sat down with Brian Trout, the an SAP staffing expert, and got his bird's-eye view on what companies are telling him and what kinds of SAP openings he's staffing out there. Looking ahead, we get Brian's take on what SAP has done wrong, what they've done right, and where he sees the market going. Our goal with this article was not just to dissect the current SAP market - we want to provide SAP consultants with a roadmap for what we're seeing out there and break down the kinds of career strategies that make sense.

As you read through our discussion, you might be surprised by how many positive signs we're seeing for SAP, despite the overall economic slowdown. In a strange way, the economic recession has further strengthened SAP's position in the ERP and e-business software markets. Those of us who can find our way through the current challenges will be in a position to capitalize on what SAP is quietly building. SAP is not unlike that classic overlooked stock that investors are looking for - the market may not seem be in SAP's corner, but SAP's fundamentals still look sound (we're not commenting on the stock price here, you're on your own with that!).

We know that everyone in the market is experiencing different and unique situations, so we look forward to hearing your comments regarding our appraisals. We know some consultants who still have all the work they can handle, and we know other equally capable consultants who've been on the bench for three to six months. This is an uneven market that is rewarding some folks and not others, and there's not necessarily a lot of fairness in how these scenarios are playing out. Our goal is to provide you with an overall sense of how we see the current SAP market, so that however you are faring out there, you'll have a better take on the trends that are going to impact all of us. We hope you'll keep in mind that we're just providing one perspective on SAP - our opinions and comments are solely our own and are provided in the hopes that they will be of real use to you in your SAP career decisions. We are not intending to criticize any individual career decisions here - we're simply trying to call attention to issues that everyone in this market needs to reckon with. Good luck out there and stay in touch.

Jon Reed: Brian, let's have a no-nonsense talk about the state of the SAP market, and how SAP consultants should respond to these market conditions. I don't know if you agree, but right now, the SAP market seems to be a little deceptive. On the one hand, there aren't a lot of good SAP positions out there, so you get the message that you should take whatever SAP project you're able to get your hands on. But on the other hand, when we learn about all these new SAP and mySAP technologies that SAP is pushing, you get a very different message: you get the sense that if you just stick with what you know and don't try to upgrade your skills, at some point soon, you're going to find yourself on the bench and out of the loop with some pretty key technologies. Do you think that's a fair assessment?

Brian Trout: Yeah, I do. There are all kinds of different things going on with SAP right now, and every company that's running SAP has a different approach. Some companies are spending on new technologies in a freewheeling manner, others are sitting on 3.1i and waiting this economy out, and then of course there are a lot of companies in between these two extremes that are doing different things. But the prevailing tone of the SAP market is one of hesitation on the part of SAP's clients - most of them are just not ready to devote significant resources to enhance their SAP environment, regardless of how appealing SAP's new mySAP solutions might be. Of course, this cautious spending climate is basically the result of the economic slowdown which we are all well aware of.

But there's an interesting undertone I pick up on when I talk with these same companies: I think there's a clear acknowledgement across the board that this spending hesitation is not in any way shaped by a reluctance to accept SAP's technology. In other words, the mySAP product line is really becoming quite robust. The strides SAP has made on APO, with version 3.0, seem to very positive, and CRM 3.0 is getting very solid feedback from those who have put it in and are looking at it. There are a lot of bugs in these new mySAP (formerly "New Dimension") apps as you might expect, but there is also a huge wave of potential opportunity out there when you talk about mySAP blending in with R/3.

For example, Employee Self-Service (ESS) in the HR area is web-based functionality that's getting a lot of play. With a Workplace server, you can create an ESS solution, whereby you're putting ESS functions out there for thousands and thousands of employees. Now, all these folks suddenly have access to this functionality, even though they didn't otherwise use the SAP system via a corporate Intranet. These people probably don't even know that it's SAP that they're using to perform these functions, it's just something that they access through their corporate Intranet in a Workplace environment. Now all of a sudden, they're accessing their benefits, putting in their time and attendance information, accessing their 401K, and all that. Things like ESS further solidify SAP's position at the center of the IT needs of a big business. There's a lot of cool applicability in terms of how the mySAP and New Dimensions apps are inter-relating with R/3 to really make things happen for companies.

Reed: Brian, when you talk about things like ESS, and other mySAP-related extensions of R/3 functionality, they sound so useful and they also sound like they could have a direct impact on a company's all-important bottom line. Given that's the case, why aren't more companies pulling the trigger on these projects?

Trout: Well, when you start talking about a company's web architecture and their whole Internet strategy, that's not something that's easily defined. In the broader picture, a lot of companies have been reluctant to go in the mySAP direction because of the perceived limitations that it might put on their overall web strategy for the business. In other words, if I commit to going beyond R/3 into a Workplace architecture from SAP, all of a sudden I've made commitments on a fundamental level to use SAP's technology versus someone else's. A lot of companies, in the face of current economic conditions, have simply not allocated the necessary attention towards figuring out their overall e-business strategy, in terms of how they are going to deal with their employees, customers, vendors - all that stuff. Underlying Internet security issues are another factor as well. So that would be my explanation.

But the future of SAP for an R/3 customer is dramatic. The Workplace capabilities, the BW report output capabilities that can be realized when you combine an ITS server with BW - all of a sudden you have extended communities of business users leveraging SAP who don't have any interest in sitting in front of a terminal. For example, when senior executives at strategic planning levels of an organization are equipped with EIS functions through SEM (Strategic Enterprise Management) over a web architecture, there's tremendous power in this kind of functionality.

For years, the prevailing message from Hasso Plattner has been: We're going to take SAP out of the client-server architecture, and we're going to get it in the hands of the overall business, and we're going to do it all through the Internet. So that's where all this stuff has been leading. Look at PLM for example. A web-driven PLM solution in a secure Intranet and Extranet environment allows for collaborative design capabilities, developing products between multiple players who might come together and bid on building a certain engineering schematic for a customer, all those types of collaborative processes that have never been available online before. These are unbelievable value chains that SAP is developing. You can almost see a hierarchy of different companies that have complimentary products or services coming together in these SAP-enabled value chains against their competitors.

When you talk about this from the R/3 perspective, it makes a lot of sense, because I think the majority of the market is still R/3-driven. There still isn't overall consensus that everybody is looking at New Dimension or mySAP products. The customers I talk to, a large bulk of them, have not even opened the can of worms on that stuff. They're still sitting on 3.1i or 4.0 or 4.6, and they're saying, "We've enhanced what SAP's got on the back end; we haven't looked at these forward-thinking strategies yet." The biggest step they might have taken is to play around with BW in a sandbox and see how they can get into extended reporting.

Reed: Do you think these R/3 customers feel some risk, given that they've enhanced R/3 on the back end, and they're now worried that their modifications and enhancements couldn't survive a plunge into mySAP.com?

Trout: No, I just think it goes back to the former, Jon, which is that a company's e-business and web strategy hasn't really been defined in a lot of companies. And when you throw in the current economic limitations on top of that - and it's a big challenge to present a convincing ROI case for these kinds of projects against this kind of scrutiny - you're stuck with an R/3 system that's just sitting there.

Reed: You have mentioned this point before - you juxtaposed the Y2K era, when companies had their hands forced into investing into SAP in order to become Y2K compliant, versus now, when the ROI for IT projects is much more heavily scrutinized before the green light is given.

Trout: Absolutely. It's convenient to be that way when you have budget constraints - IT projects are more heavily scrutinized now than ever. Previously, there was the whole artificial environment that the Y2K movement created in my estimation. Another variable to consider is that SAP was a lot more simplistic at that time. Let's face it, the decision-making about different products and solutions becomes more and more time consuming and complicated when you have more choices. A few years ago, when you talked about an ERP solution, it was pretty cut and dried: "Do I go with Oracle, do I go with SAP, do I go with PeopleSoft, or do I go with another smaller, industry-specific player?"

Reed: You've also talked about how the economy can create a self-perpetuating cycle of IT spending cutbacks, because when you look around at your competitors and they're not heavily investing in these new e-business areas, you can justify doing nothing yourself in terms of new projects, because you know that you're not being left behind by your competitors.

Trout: That's right. The stagnation that's out there economically is also out there intellectually and technically. A lot of companies burned a lot of money on IT solutions that were unproven. We all saw the stories in the e-business software development markets, where companies were here today and gone tomorrow. These collapses left a lot of skepticism in their wake. Now, when we see Fortune 50 companies collapsing due to bad practices and economic conditions - when we see that companies like Global Crossing and Enron can't survive - then why would your company want to allocate precious resources on unproven solutions? If you're the CFO of a big company, even though the vendor you're considering is offering you a leading edge solution, the last thing you're going to do is bank your whole company's future on that, just because of the reality that we're not in stable market conditions. That's another contributing factor in the reluctance to invest in the e-business products that companies like i2, Ariba, and even SAP have been pushing.
Where Do We Go From Here?
A Look Back at Jon Reed's "State of the SAP Market" 2002
Part Two
March 11, 2002

In the second part of the interview, we start with a review of how new R/3 investments are being affected by current market conditions. Then, Brian gives us an overview of the kinds of SAP requirements that are being generated on R/3 client sites right now. Brian tells us why the amount of requirement varies greatly, based on the stage that the overall R/3 implementation is in, and the plans for extending the R/3 system into various mySAP applications. We learn about which types of requirements are being handled "in house" and which are still being outsourced to independent consultants.

Jon Reed: So when you talk with SAP clients right now, what kinds of positions do you see most often? I know you do see some hot new mySAP positions, but you also see a large amount of "core" SAP requirements that are needed for standard upgrades and enhancements...

Brian Trout: That's right. Even a simple R/3 upgrade isn't a no-brainer for companies any more. They want to see a business case where the return on investment is there. For this reason, I think a lot of clients have looked at the functionality they're currently running on the 3.1 or 4.0 levels, compared it with what SAP has to offer in version 4.6, and said, "This just isn't worth the jump." And with support for 3.1 available through 2003, there's no artificial market drivers to force these types of upgrade investments.

And that's where we are. It's easy to creep along, maybe take some of this new technology, play around in a sandbox, and do some of these things with existing staff. Of course, there are staffing ramifications of all this. If you don't have that sense of urgency in the market, sales can only be achieved through rigorous proof of ROI and technical innovation. SAP has done a good job of introducing products into the market that are innovative, but it's just that now, with the economic recession, even if you can prove the ROI case - even with that in place - a company might be thinking, "My competitor's not doing it, so I'm not going to do it." It's that kind of thinking we're trying to push companies to move beyond now.

Reed: And it can be a challenge to get companies to enhance their R/3 systems even if you've proven that there is a definite ROI.

Trout: Yes, even if SAP's sales guys come in and show you the moon and all the amazing things that can happen, it might not seem like the right time to buy. There's a convenience on the part of the enterprise that says, "We have time to wait. And we're going to wait for friendlier days when our manufacturing orders are going through the roof again." They may also be thinking, "If we're surviving as a business now, why do we want to invest in these tools when we don't see the upward trend in our overall business to justify it?"

That's a tough one to answer. I think part of the problem has been that many companies have never stopped to measure the return on investment they got from R/3, or they weren't able to quantify it. They just remember how painful it was to implement and how many change management issues they ran into. I think they justify it mentally by saying, "Well, we avoided Y2K problems." But what were you really getting out of SAP in the big picture? That attitude, and the fears of overrunning budgets, are more reasons why the SAP market has slowed. I'm flying off the cuff here with a number of contributing factors that explain how we got to where we are.

Reed: Yes, that's definitely painting a picture. But tell us more about the kinds of openings you do see from companies when they are in hiring mode.

Trout: It depends on the business case. I categorize customers into three segments: the first segment is those that are stagnant on their current R/3 architecture and have no investments in the New Dimension and mySAP series, but are continuing to do rollouts of their existing configuration. There are a lot of facilities and a lot of divisions to these businesses that were never rolled out, and they're continuing to do these rollouts with minor modifications that are typically done by in-house staff, so there aren't a lot of staffing needs generated by this first group.

The second segment of SAP customers are those that are aggressively upgrading at various points. The kind of consulting demand I see there is for subject matter experts in whatever functional/technical area is the focus of the current upgrade. A typical requirement from this kind of customer might be: "I need someone who knows what SAP has to offer in the _____ module in version 4.6compared to what we have in place now. Find me someone who can help design and configure the new system." They need someone who can be a subject matter expert to carry them through that sub-module process. Typically, these needs are in what I call the "second tier" module areas, like QM, PM, SM, and WM.

Often this 4.6 upgrade will generate new technical requirements pertaining to new capabilities that may be available. Consequently, on a development level, when a company decides to upgrade to 4.6, they might start talking about the availability of new report output technologies like Smartforms and ALV, and so you'll see some outside consulting demand there, simply because a company's existing IT development shop doesn't have access to people that have experience with those things. Most SAP customers will wait on that new functionality, but since it's available, some companies will bite on it and generate some consulting needs.

The third segment of SAP customers is made up of those that have branched into the more sophisticated investments of New Dimensions and mySAP technology. And in that category, you will see varying degrees of investment. There are those that say, "We're going to do simple things with BW," and those that say, "We already have BW in, now we want to look at what APO and CRM can do, or what PLM can do, etc." Some of these companies have gone even further, and they might say, "We have a fully developed Internet strategy that supports where we want to go as a business. We see SAP as an integral part of all this; we're going to upgrade to web-based BW output for multiple users through a Workplace environment, we're going to do hand-held wireless device integration, or custom portal solutions from SAP Portals."

Reed: Brian, let's make sure we're clear on the consulting demand you're seeing out there. In the first area you've described, the area you referred to as "basic R/3 with continuing rollouts," are those installations generating any outside requirements?

Trout: Those kinds of R/3 needs are mostly getting handled in house, and that's the bulk of R/3 customers right now. Unfortunately, this is the same area that used to constitute a major area of employment for contractors, and it's not there now. However, there may be some ABAP or functional needs if a new divisional rollout is very complex or has a large amount of data to migrate.

Where Do We Go From Here?
A Look Back at Jon Reed's "State of the SAP Market" 2002
Part Three
April 1, 2002

In the part three of the interview, we take a closer look at how these SAP market conditions are affecting independent contractors. Brian gives us his honest opinion as to what it's going to take to ride this market out and position yourself for the mySAP market of the future. Then we move into a discussion of the relevance of training and certification, and we hone in on some of the "best practices" for getting new technology exposure, even in a tight market.

Jon Reed: So when we take a look at this market in terms of contractors, we have to be realistic. We can't paint a rosy picture when we know that some folks have really had some trouble finding good projects or getting the rates they're used to. And as long as the economy is sluggish, SAP contractors are going to have a tendency to take whatever they can find. But your advice to contractors is to continue to be aggressive about getting new mySAP-related skills, even if those "cutting edge" SAP projects are hard to come by.

Brian Trout: That's right. If you want to stay in SAP, and you have a core R/3 skill set, either functionally or technically in some area, and you've made the cognitive decision that you want to ride out these market conditions and wait for better days to consult in SAP, then you need to look at where SAP has extended the functionality and the new product offerings that are applicable to your skill set. It's that simple. It sounds like a no-brainer, but when you dig under the covers a little bit, you find that there are a bunch of new tools, new innovations being introduced, and you're just going to have to find one of those "category three" companies I talked about that has made those investments. And you're going to have to work in the most competitive rate fashion possible, because there are going to be others who have done what you've done, and it's all going to be much more cost-driven than what we're accustomed to in SAP.

Reed: And part of your point there is that if you don't get yourself training, experience, and exposure in these cutting edge areas...

Trout: You're going to wind up taking a perm job for a company who's just lost somebody who did get that kind of experience. :)

Reed: Or you're going to wind up with no SAP job at all, because these companies are taking internal responsibility for so much of the SAP work that used to be outsourced.

Trout: Unfortunately, if you wind up in one of the empty musical chair seats right now, in these economic conditions, then you're going to have slim pickings.

Reed: So even though times are tight, you would still put a big emphasis on choosing the right project, and making sure you can get cutting edge SAP skills exposure wherever you can find it.

Trout: No question. If you currently have a permanent job in an SAP shop, you better have a good idea of where that company is going with SAP. Your thinking should be, "If I get stuck in a company that's running on 3.1 or 4.0, and there doesn't appear to be any catalyst or motivator to get the company to invest further in what SAP is doing, then every day, every month that I sit here I'm becoming less and less marketable." And the widening gap grows every day that you're sitting there while new technology is being introduced on other SAP project sites. If you want to have a career as an SAP consultant, you need to leave Company A and go to Company B, a company that is planning to make those SAP investments. Or even better, you'll go to Company C that has already made those investments and is willing to introduce you to the new technology.

Reed: I've talked with consultants about the issue of training on many occasions. I think we need to emphasize once again that investing in new SAP training is not necessarily, in and of itself, a guarantee that you will be able to work in these new areas you've gotten training in. You and I both know a couple of very senior functional consultants who invested in their own BW training and certification a couple of years ago, but have yet to land their first BW project. And these were senior functional consultants, guys with a real track record, not at all new to the SAP market. A lot of people think, "Well, I'm going to go get training in APO," and then they email us later and say, "Why can't I find an APO project now that I'm certified?" As it turned out, they forked over a lot of cash but didn't get an immediate result. Investing in future training is still a key strategy for any independent consultant, but the benefit of the training is often realized in the long term as opportunities emerge - not in the short term when you're scrambling to find a new project.

It's been a long time since SAP certification was enough to win you a new project opportunity by itself. Right now, certification seems to function more as a kind of a tie breaker, for example, when you have two consultants with identical levels of hands-on skills competing head to head for the same opening, then certification can be a factor. On the other hand, certification can be an asset to you once you are on a project, and you are invited to participate in a new SAP initiative because you do have the training and you're also a proven commodity on the project. It's not that training is bad at all, it's just not the cure-all that we often wish it could be. Of course, the best situations are where the company you're working for wants to train you and then immediately put you out onto the project where you can really get some new hands-on skills under your belt.Trout: That's all very true. I'm thinking of a CO-PA consultant right now who has invested in a series of certifications in BW, and now SEM. He's doing the right thing, in that he is investing in emerging areas of SAP technology that line up nicely with his core CO-PA skills. He hasn't been able to get onto a project and use his SEM skills yet, but you get the feeling that at some point the investment in the training will pay off for him. Eventually, he's going to find himself on a project that moves in an SEM direction, and his pro-active investment in SEM knowledge is going to land him a seat on that new initiative.

Reed: But as you said, it's much more likely that he will be pulled into an SEM gig while working for a client in a CO-PA capacity. In other words, even though he is SEM certified, he's less likely to score an SEM project as a new project opportunity, because there are already some consultants with a full SEM project under their belt who would beat him out for that slot. But he could get in the door with his CO-PA skills, and then be in a position to be considered as a proven commodity, a trusted "right hand man" on the new SEM initiative. For him, project selection is crucial, he has to have the magic eight ball and know which clients are going to move in the SEM direction, and put himself in the right place and the right time.

Trout: Exactly, that's the whole key. Through your travels, you're going to run into a project that's going to make that decision. The fact that you've already invested in the background tools ahead of time is going to be a big help. Training is a good long term investment, but not a quick fix.

Where Do We Go From Here?
A Look Back at Jon Reed's "State of the SAP Market" 2002
Part Four
April 14, 2002

In part four of the interview, we take a closer look at why there's reason to be bullish on SAP despite the current market difficulties. Although getting through this period can be a real challenge for consultants, as you can see from the following discussion, we believe there is reason to hold on.

Jon Reed: Let's talk about some of the good news on the SAP side, because despite the overall economic slowdown and the decrease in consulting demand, there is some very good news for SAP in the way the e-business software market is unfolding. As tight as things are right now in the market, I still feel that SAP is in better shape now than it was about two years ago, when the dotcom boom was in full swing, and SAP was really looking like a bloated legacy application that had seen its best days.

At that time, you had these high flying best-of-breed competitors like Siebel and Ariba that were stealing SAP's market share and mindshare, and even SAP's own executives. At that time, ERP was looking like a back office afterthought, a cumbersome application that was non-essential for upstarts like Amazon.com, who were having so much success grabbing market share, putting fear in the hearts of the established, brick and mortar players in virtually every industry.

Just a couple of years ago in the B2B, supply chain, and CRM spaces, it seemed clear that a bunch of agile, best-of-breed players, much faster on their feet than the ERP dinosaurs, were going to swoop in and claim those key areas and really stick it to SAP. When you fast forward to today's situation, a lot of these same best-of-breed companies are in serious trouble, or facing options like "consolidate or go out of business." Then you look at SAP's current situation: not only has SAP had the time to develop a much more competitive line of e-business applications, but they've been able to weather the economic storms better than the dotcoms and hold onto their core R/3 client base without too many big defections. Yes, they lost some major CRM sales to Siebel, but they held on, and at this point, the companies that haven't made a major supply chain or CRM purchase - and there are a lot of them - now seem to be willing to wait for SAP and at least give them a swing at the plate before they look elsewhere.

And the good news for those with a stake in SAP continues, because I feel like SAP is now moving into a phase where they're no longer just reacting to the market and scrambling to catch up. I feel like they truly have a vision of how they can really help clients with e-business strategies that make sense in today's bottom-line-oriented market. It's not like SAP's just desperate to be relevant as they were a couple of years ago. I feel like SAP's really leading with some mind share right now - they have some compelling ideas on how to help companies, and they're backing up those ideas with solid functionality and application integration.

Brian Trout: I agree. The timing is everything. When you think about these innovative vendors that were looking to steal some market share from SAP, it was a case where they got their legs moving, but the economy took a shift in a negative direction and they just didn't have the longevity or the credibility to keep the momentum going. In terms of SAP, I thought they did a pretty weak job of marketing mySAP at first - It seemed like they put out mySAP almost as an afterthought. It's as if they said, "We've got to be in the dotcom business, so we're going to say ‘We're mySAP' before we even know what it means," and that message got out to the market and it hurt SAP.

What's washed out over time has been what you said. The reality is that these up-and-coming players couldn't survive, and it's really put SAP in a tremendously competitive position, more so than even they had before. It's clear that SAP was able to close the development gap on a lot of its competitors, because the market was taking a sideline approach to these technologies. If companies had quickly adopted other solutions that were not going to integrate with SAP, then SAP would have started losing market share. But that didn't happen for several reasons. First, the slower economic conditions. Second, because the ERP system is the backbone of the business, and that created a genuine fear of integration.

So where does that leave us today? The development gap has closed, SAP has cleared up its image on mySAP and honed its marketing efforts, and the loyalty from customers has proven consistent. So yes, absolutely, SAP has been in a cornerstone position, able to pursue all the new technology enhancements while maintaining its current client base.

Now the big question for SAP is this: once they draw a fence around the market, and say "This is our customer base," then how do they go out and win other customers? What I don't envision, and what we really haven't seen a lot of, is this kind of situation: "Well, this is an APO client. They don't have R/3, but they're running an APO system because it's the best supply chain solution they could find." We've also haven't typically seen SAP going head-to-head against Siebel for CRM sales with non-R/3 clients. I've only seen these things in rare, rare instances. I think I've found only one company that went with APO that didn't have SAP R/3 installed.

Reed: And in our interview with Naeem Hashmi on BW, he did mention one client running BW that installed BW before they installed R/3. But it's still pretty rare to see SAP winning new sales strictly with a mySAP application all on its own merits.

Trout: To be able to sell all of their e-business products on the open market: that's the "perfect world" scenario for SAP. And, of course, SAP is going to position their products so that they can stand alone. But the reality is that the cement is dry on ERP. You've done what you're going to do there. And once your ERP solution is in place, that's going to heavily influence any future software investments. As an IT shop, you have to live with those decisions. I don't see a lot of inbreeding with mySAP solutions in Oracle shops, or Oracle CRM in PeopleSoft shops. You're basically in bed with the ERP vendor that you went to the dance with. Now it's the case that those vendors have won the right to future sales on that account, much more so than they could have ever dreamed when they first won the ERP account.

Looking back now, it's really hard to believe that companies were actually saying things like, "Oh gee, SAP is dying because ERP systems are old news and now we want to do all these new things." Well, guess what? The reality is that once you were able to capture all the transactional systems for a business, that was going to be a cornerstone factor in any decision for new apps from here on out. The blend of the economic downturn and the lack of reliability and stability with a lot of these new players left people looking for answers, and right now, to the convenience of SAP and other ERP players, no one is knocking down their door saying "I need this now." That buys SAP even more time to hone their products and conduct flagship implementations without the intense pressure of an impatient customer base.

But that will happen eventually, and the good news for SAP is that they've closed the development gap, I believe, and when companies do come knocking, they'll have referenceable, big time customers, and proven solutions that are going to be able to meet that demand.

Reed: SAP may not be able to bust into too many big new accounts, but at the same time, it may not matter. They have by far the biggest install base of any ERP vendor.

Trout: Absolutely. They own the large scale marketplace, and that's what I think their five year plus market plan is. I think SAP is saying: "OK, once we've put this collaborative e-business infrastructure in place, then we'll figure out how to get all these communities and companies to collaborate with one another and we'll provide the transaction medium on which all this takes place. The future of SAP is SAP Markets and SAP Portals. (editor's note: in future editions of our newsletter, we'll look more closely at the SAP Markets and SAP Portals products and the consulting markets that are emerging around these two products).

SAP Markets are SAP Portals are the incubators for where SAP will segue its overall value in the future. That's my view, but that's looking out in the distance a bit. SAP will have a whole new set of opportunities once they get a community of R/3 customers all enabled on these Workplace functions, and participating in extended value chains through CRM and PLM. What SAP will ultimately want to do is to create the transaction exchanges from which these customers collaborate. They want to become the AT&T of the e-business world, and they have a chance to do that.

Where Do We Go From Here?
A Look Back at Jon Reed's "State of the SAP Market" 2002
Part Five
April 28, 2002

In part five, the final installment of the interview, we begin with Jon explaining his theory of how SAP is meeting the needs of its customers by assuming more responsibility for the integration burden. Then, Brian Trout gives an overview of how the Enterprise Edition of R/3 will give SAP even more tools for helping customers with smaller, manageable projects. We wrap up the interview by taking a closer look at the latest economic news, and come to the conclusion that, "as the market fares, so will SAP." The final verdict: SAP is still a very competitive e-business product, but the consulting market isn't going to pick up dramatically until the economy also improves.

Jon Reed: The other thing that I like about SAP right now is that they really seem to have geared their sales approach to a tighter market. Obviously, there's not a lot of spending on e-business software going on, but I don't think that's because SAP hasn't gotten the picture. When you look at the kinds of things SAP's been doing, they do seem to be saying what companies want to hear. It may sound simple, but that hasn't always been the case. A couple years ago, SAP was catching some serious heat because companies were sinking big bucks into competing solutions - solutions that looked more Internet-ready than SAP. And all SAP really could say to their customers was: "Think about the integration hassles when you put in best-of-breed components." They didn't really have solid alternatives to present to the market.

But now, SAP has a new approach to the best-of-breed versus integration issue. They have improved their line of products across the board, so that helps, but they're not just pushing an "SAP only" environment onto customers. It seems like SAP is now willing to take some responsibility for integration in exchange for solidifying SAP's role as the key platform for e-business and ERP transactions. SAP is now saying, "Look, you can have a heterogeneous application environment, with a web-based SAP infrastructure holding it all together." So instead of forcing companies to pull out important custom and best-of-breed applications - installations that they already have a huge investment in - SAP is now saying, "You can keep what you already have in place, we provide the tools to integrate all of this."

SAP has essentially assumed responsibility for the integration burden of their customers, or at least that is a major thrust of their sales pitch at this time. They are at last claiming accountability for SAP within a heterogeneous environment. And that was the big problem companies were wrestling with: who is accountable for making all these apps get along? And how can I make incremental improvements and investments in key enhancements without having to upgrade the entire ERP system? And SAP now has some pretty coherent answers to those questions. Of course, integrating all of that stuff is easier said that done, and SAP still acknowledges that their products are going to run more smoothly together than a variety of products from different vendors, but at least the sales pitch seems geared to the concerns of cost-conscious companies.

Brian Trout: Absolutely. SAP has done a nice job of knowing how far to stretch themselves into certain areas. I won't say that they have always succeeded, for example, their retail and footwear industry solutions have not lived up to expectations. I think SAP would even acknowledge that if you really pressed them on it. But Jon, here's something to consider that validates what you've stated: when SAP releases R/3 4.7, the R/3 Enterprise Edition, there is going to be a fundamental shift in the architecture of SAP with that release. In the future, if you're on 4.7, what you're going to be able to do is to discriminate upgrades and new products.

You could use this analogy: instead of R/3 being a suite of modules that you purchase, R/3 will be any module you want to purchase, which plugs into your environment like a Lego - you just stick in the piece you want. And you can keep upgrading HR through version 9.0 if they ever build that, and you don't have to do anything else to FI, or CO, or any of the other modules you have running.

So SAP has essentially become best-of-breed sub-products under the same community. That's a big, fundamental shift. One of my personal beliefs, when you talk about where R/3 is going, and where SAP is going, is that 4.7 is going to quickly become a de facto standard for the way you operate an SAP shop in the not-so-distant future. And so if you hear someone asking questions about "Will the 3.1 shop finally upgrade?" Well, they better! Because if they don't, SAP is moving away from, fundamentally, what they initially sold them, not just in terms of the product release number, but in terms of the actual technology that makes up their products. Once R/3 Enterprise is in place, that will also facilitate an ease of introduction for a lot of these new mySAP products.

Reed: My own theory on SAP is that at some point in the last year, SAP experienced a series of creative breakthroughs. It all comes down to the realization that they could make ABAP and Java co-exist within an SAP environment. Up until that point, it was a major question for SAP: "Are we going to rewrite the entire SAP application in Java? And if so, what a huge undertaking! And what are we going to say to our customers who have heavily invested in ABAP customizations that they are asking us to support? If we can't support their current installations, then the fact that we have developed a whole new web-based, Java based architecture won't really matter to them."

But at some point, SAP had a breakthrough, and they figured out that using some very specific kinds of integration protocols, that they could make their ABAP technology and Java technology co-exist in an enhanced SAP environment. Once they figured out how the core R/3 system could interact with XML-based exchanges, Java/web-based architectures, and the latest cutting edge product extensions like wireless functionality, SAP had a major breakthrough. And they didn't have to redo all of the code in the entire R/3 suite, which would have been a Mount Everest-style undertaking that would have been a huge distraction from the e-business product developments they need to be focusing on.

Trout: I agree with you on that. I think the big thing is the enhancement of the ABAP programming language to become an object-oriented, functional environment that is similar to what Java is all about.

Reed: It will be interesting to see how this all plays out. Because right now, when we take a look at the market, we might say, "Things are tough right now," but for those of us who are committed to SAP and to riding this market out, we can see a lot of promise. We're not sitting here like we once were, wondering about our commitment to SAP, wondering if the dotcom economy was going to wipe SAP out or really put SAP back on its heels.

Trout: I think clearly, those days and that kind of thinking has passed by.

Reed: So until we see otherwise, it seems like we're really embracing a new theory, which is: as the market goes, so does SAP. In other words, if the fundamentals of the overall market improve, we should also see a corresponding shift in those whose fortunes are tied to SAP. And I guess we'll continue to subscribe to that theory until the market improves and we see companies spending big money on other software vendors, but not SAP. Is that how you're feeling?

Trout: The thing that we all have to be aware of is that there's not an artificial catalyst at this point. We don't have a Y2K doomsday catalyst out there to force people to spend, and that makes it doubly difficult to be in this position when the economy is recessed.

Reed: And Brian, I know that you don't present yourself as an economist, but we have seen some encouraging signs lately in the overall economy.

Trout: I'm not an economist, but as I understand it, when the leading indicators are up for two or three consecutive quarters, it's supposed to indicate the end of a recession. It's certainly good news that those indicators are up. The leading economic indicators announced for January 2002 were positive, which included raw manufacturing numbers - the indicators were up by plus 1 percent, which is a move in the right direction. When Greenspan said recently that no further interest rate cuts were needed to stimulate the economy, I think maybe he was thinking something similar, that we're going to make a turn here.

Reed: And now we're waiting on some fourth quarter earnings reports.

(Editor's note: this interview took place before the Enron meltdown, which has seemed to put a bit of a damper on the speed of the economic recovery).

Trout: That's big piece of it also.

Reed: So until we see a scenario where the economy improves, companies start spending, and we still don't see any further investments in SAP, then we'll stick with our theory that SAP is pretty much in tune with what their customers are needing, and it's simply more of a basic economic issue right now: the money needs to be there before the SAP consulting market takes off again.

Trout: If anyone's out there thinking, "Well, this consulting demand has decreased because SAP missed the boat on what their customers need," I think that's wrong.

Reed: Well, I think that makes a lot of sense. Brian, I think that's a real in-depth state of the market for us. Thanks for sharing your insights with our readers, I know they'll appreciate your frank and forward-thinking comments.

Trout: No problem. I enjoyed the discussion.

How Times Have Changed:
A Reader Responds to our "State of the SAP Market" Feature

Our readers have had a few thoughts of their own regarding our current feature on the SAP Market. The feedback we're getting from consultants in the field is coming back with two distinct messages: consultants are still confident about the future of SAP, but they're also concerned about where they stand in the current market, and they're honestly wondering how long the "e-business project slowdown" will last. This week, we'd like to share a letter we received from Marci Pinkard, a long time SAP consultant. Her thoughts about the current state of the market and the aggressive approach she's taken in terms of expanding her own skills are food for thought.

Dear Jon,

I enjoyed your talk with Brian Trout, and even laughed out loud - it was so similar to a conversation that I had with my colleague CJ over a year ago. You may remember that two years ago we pulled CJ into a conversation about being an SAP contractor versus being an employee for an SAP end-user company.

In any event, even though SAP had no specific module that dealt with SCM and CRM (and never mind that what SAP has done for years with PP-MM-SD was both SCM and CRM), CJ and I agreed that SAP wouldn't go away unless we do. SAP's most formidable assets are having the largest market share, plowing under a significant percentage of its profits into R&D, and, of course, it's been around awhile and is unlikely to go belly up.

It now makes me laugh to remember what happened to i2 a little over a year ago. In Q1 or Q2 of 2000, it was trading at well over $100.00 per share, and even then SAP was far below that. However, if you follow the market at all, SAP had no wild swings and i2 bottomed out at a few dollars a share. It's still at the low end in trading.

The point is that SAP is seen as pretty stable for a high-tech company, glamour girl or not. And no one wants to risk the big bucks on unproven pretties, all to the advantage of those in SAP (CJ, you, and me, among others).

You and Brian are correct that companies are dragging their feet implementing upgrades including, of course, APO and BW. When they do, they want to pay rates half of what we saw last year before September 11th. Companies are trolling endlessly for someone with 10 years of SAP experience (yeah, sure) who'll work for $50.00 per hour on a month-to-month basis, or take a $60,000.00 salary as a perm employee.

Somehow, I am thinking that this scenario cannot survive. SAP is something that you are born to do, and most employee-types and in-it-for-the-money-types are unable to produce the results. SAP is simply too demanding and challenging for that to work.

In any event, thanks for making me laugh and for confirming my perceptions re: SAP upgrades and APO implementations. Given the dearth of consultants with 4.6c and APO, I am thinking that with my six years in SAP, I can parlay my i2 TradeMatrix Demand Analyzer and Demand Planning, both of which are CRM and SCM components, into work with APO.

Oh, and I've been stuffing my tiny mind with all of SAP's APO training - and I am pleased to say that it makes great sense to me and is pretty well integrated with SD and PP-MM functions in the R/3 client too.

Best regards,