1. What are SAP's sources of competitive advantage and how do they coincide with business model?
2. Using Porter's five-forces model, what does the competitive structure of the standardized software industry look like? What internal strengths and weaknesses exist for SAP?
3. What business and functional-level strategies are fitting for SAP in their point of the life cycle?
4. What organizational structure challenges exist at SAP? What organizational structure recommendations to you have for SAP?
The case describes the growth of SAP into a global corporation, and the growth problems it has faced in the 2000s. SAP was founded by five German computer analysts in 1972, who quit their jobs at IBM to develop their own products. SAP is credited with starting the Enterprise Resource Planning (ERP) industry. ERP is an industry term for the real-time multimodule (incorporating all business functions) applications software that allows a company to manage the set of activities and transactions necessary to manage the business processes for moving a product from the input stage, along the value chain, to the final customer. As such, ERPs can recognize, monitor, measure, and evaluate all the transactions involved in business processes such as product planning, the purchasing of inputs from suppliers, the manufacturing process, inventory and order processing, and customer service itself. ERPs have been invaluable in integrating supply chains globally, by providing real-time information to managers in all business functions to make their decisions. On the brink on SAP's ERP popularity, the company's strategic decisions that proved fateful in a positive and negative ways included:
• Its decision to focus on large multinational companies- Its focus on this influential niche of companies helped SAP develop a global base of leading companies. Its goal, as it had been from the beginning, was to create the global industry standard for ERP by providing the best business applications software infrastructure-and it succeeded in 2011 it still has the largest installed base of the world's most well-known companies.
• Its decision in the 1980s to focus on product development (ERP consultation) rather than installation (installation would be handled by licensees along with SAP employees).
• Its decision to rapidly set up highly decentralized national-level subsidiaries- By 1995, it had eighteen national subsidiaries; today, it has over fifty.
In addition to the fall-out from these decisions, SAP also suffered from its founding conditions-an engineering, product-oriented mindset, which provided short shift to marketing, HRM, and most importantly, strategic management at the top. The lack of strategic thinking at the top becomes apparent when one realizes that the company failed to recognize how the Internet could make their products obsolete, and how new competitors, such as Oracle, and Siebel Systems., could develop products that cost thousands of dollars less to purchase, install, and operate. SAP made a significant decision to work through thousands of partners to produce new products, rather than produce everything in-house. In the process, SAP cooperated and competed with some of the same companies, such as IBM. The larger questions of whether SAP has recovered from its strategic mistakes, and could regain momentum in revenue and earnings growth of earlier years still remained, in the face of powerful new competitors and emerging opportunities in developing countries. SAP's top managers began to contemplate the following questions for how best to refocus its business model and continue to protect its competitive position.
What strategies should they use to protect their competitive position? Should they forge ahead with offering their customers a broad, proprietary, web-based ERP solution and try to lock them in and continue to charge a premium price? Should they move to an open standard and make their R/3 ERP Internet-enabled modules compatible with solutions from other companies, and indeed forge alliances with those companies to ensure that their software operated seamlessly together? Since SAP's managers still believed they had the best ERP software and the capabilities to lead in the web software arena, was this the best long-run competitive solution? Should SAP focus on making its ERP software more customizable to its customers' needs and make it easier for them to buy selected modules to reduce the cost of SAP software?