Vendor Ratings, VDR Yvonne Genovese

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1 Vendor Ratings, Yvonne Genovese Research Note 9 July 2003 Vendor Rating: SAP s Size May Inhibit Future Growth SAP s ability to change with market demands continues to surprise users, but this change is not without costs. SAP continues to be plagued by perceptions of its complexity and market confusion concerning its solutions. SAP Overall Rating: What You Need to Know: SAP is well-positioned to continue as a leader in the business applications market. However, SAP is plagued by a lack of speed in meeting the demands of small and midsize enterprises. SAP s continued growth depends on its ability to maintain its focus on defined industry segments by extending the functionality and user acceptance of its complete product, as well as the components. SAP must create a concise product road map from its wide array of offerings and technologies, so that enterprises can more easily match SAP s products to their own business strategies. SAP s track record proves its ability to adjust to market demands in a just in time fashion. User enterprises considering SAP should reference Gartner Magic Quadrant placements and individual product ratings. Users must also consider SAP s holistic business strategy, which is based not only on providing components, but on delivering breadth and depth through a foundation of proven functionality and technology. Analyst Comments: SAP s greatest challenge lies in its ability to transform itself from an enterprisecentric business applications vendor to a vendor with the capability to deliver solutions across the user enterprise s value chain. Detailed Rating: Corporate Viability Strategy Financial Marketing Organization Product/Services/ Technologies Product/Service mysap ERP mysap SCM mysap CRM mysap PLM mysap BW Initiative Rating Gartner Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Business One mysap WMS Technology Pricing Customer Service/ Product Support Sales/Distribution Support Services SAPC for CRM Corporate Viability: SAP s size is a strength in a market where vendor viability is of utmost importance to users, and single-vendor strategies promise simplicity in business application operations. However, SAP s size also presents a challenge, because many user enterprises assume that matching SAP s large product and technology road map to their own business strategies will be difficult. SAP, with a 2002 revenue of 7.4 billion euros ($8 billion), is the world s largest enterprise and interenterprise software company, and the third-largest independent software supplier, with an estimated 19,000 customers and 12 million users (Gartner estimate). SAP s vast customer base, global presence, deep and broad functionality, and ability to invest more in applications R&D than any of its competitors give it strong market appeal and an enormous competitive advantage. Although the long-term prospects for SAP to keep its leadership position are good, its growth is hampered by economic conditions (1Q03 product revenue was down 12 percent), as well as by user perceptions that SAP is too large, and that its solutions are expensive and difficult to justify. We rate the corporate viability of SAP as positive. The evolutionary growth of SAP has resulted in a variety of software offerings, built on leading technologies, that focus on 23 industries. To most current and prospective user enterprises, the sheer breadth and depth of SAP s offerings are daunting. Through 2006, these perceptions will cause most SAP users to underinvest in areas where they may realize significant competitive differentiation (0.8 probability). Products/Services/Technologies: mysap ERP (Rating: ) mysap ERP will offer prospective users enterprise-specific business-process functionality, analytics and NetWeaver technology, but it will confuse the installed base R/3 users (see mysap ERP vs. R/3 Enterprise: A Clarification ). For this reason, we rate mysap ERP as positive. Installed base users that are evaluating R/3 Enterprise should consider mysap ERP by evaluating incremental business functionality, technology, pricing and maintenance cost differences. Users should form peer groups to exchange information regarding the risks and rewards of a particular upgrade or product. R/3 users should be aware that mysap ERP has no impact on their upgrade work efforts if they are already planning to move to R/3 Enterprise. There will be an impact if they decide to execute the new technology and functional components. mysap SCM (Rating: ) During the past few years, SAP has emerged as a dominant player in the various supply chain management (SCM) markets ( SAP in SCM: ERP Takes on Best-of-Breed Vendors ). SAP has achieved this position largely by leveraging its large installed base, rather than by its functionality, which surpasses that of best-of-breed vendors. SAP s continued investment in SCM and input from its extensive installed base make it a strong contender in the SCM battle. For this reason, we rate mysap SCM as promising. Through 2007, SAP will have one of the two largest SCM installed bases in the business application market (0.8 probability). Here, we explain SAP s market position and its SCM products, and offer guidance on when you should invest in SAP products and when you should seek other alternatives. 9 July

3 mysap CRM (Rating: ) At the heart of SAP s approach to customer relationship management (CRM) is its installed base of R/3 customers (see Vendor Rating: SAP CRM Revised ). Selling to this base has provided SAP with strong CRM viability. Therefore, we rate mysap CRM as promising. Functionality lags the market because SAP believes that it is already perceived as good enough by established R/3 customers that value low-cost integration. SAP s success can be traced to mysap.com licensing deals, which bundle mysap CRM with other applications. SAP s CRM-certified consultant partner network is growing but inexperienced. Only 20 percent of SAP s CRM customers are live. Most implementations are small and relatively complex deployments. Future releases will focus on vertical CRM functionality, but investments will not be evenly spread. Enterprises with a commitment to SAP will benefit most from mysap CRM, particularly if they operate in the following vertical industries: aerospace, chemicals, consumer packaged goods, construction, discrete manufacturing, engineering, milling, mining, oil and gas, service providers and utilities. mysap PLM (Rating: ) SAP Product Lifecycle Management is a viable candidate for enterprisewide product life cycle management (PLM) support among discrete manufacturers and process manufacturers (see SAP Is Building PLM Presence With ERP Muscle ). Therefore, we rate mysap PLM as promising. SAP continues to improve its PLM support, enabling the company to support broader classes of products over longer product life spans. Although some companies have deployed mysap PLM independent of R/3, deploying mysap PLM with R/3 still makes the most sense for established SAP customers. However, SAP s PLM offering is not yet suitable to support complex products such as automobiles, aircraft and ships. Most likely, enterprises in industries that deliver such complex, highly engineered products will need to augment mysap PLM functionality with best-of-breed PLM software. Before adopting mysap PLM, enterprises should run pilot programs to ensure that software functionality and quality of services address the needs of its vertical industry. mysap BW (Rating: ) The number of SAP customers deploying Business Information Warehouse (BW) is quickly increasing, driven by SAP s strategy of making BW a required component of the mysap infrastructure. For this reason, we rate mysap BW as promising. Many enterprises recognize the value offered by BW s tight integration with R/3 and extensive predefined business content. However, BW implementations are rarely painless, particularly in large enterprises. Enterprises that implement BW must be aware of shortcomings in the SAP-provided query and reporting tools, the need to customize business content to meet requirements, and the challenges in administration of the BW environment. mysap BW s promising rating reflects its significant momentum within the SAP customer base, as well as its important limitations and challenges. mysap WMS (Rating: ) Too many users summarily write off SAP for warehouse management systems (WMSs) because of slow progress and market misconceptions about SAP s intentions (see SAP WMS Will Become a Contender in 2005 ). We rate mysap WMS as promising because it is functionally suitable for moderately complex warehouse installations, and is making progress toward more-complex facilities. SAP faced its biggest challenges in the area of work management, radio frequency device support and the ability to support an R/3 instance dedicated to decentralized warehouse management. SAP is delivering solutions to each of these challenges; however, users should verify that the specific functionality that they require is already used by SAP customers, that SAP can meet implementation time frames if new functionality is required, and that the implementation team has experience implementing mysap WMS in a complex warehouse environment. Business One (Rating: ) SAP hopes to attract smaller businesses experiencing minimal process complexity with the recently introduced SAP Business One solution (see SAP Business One: Capable of Challenging Business Leaders? ). Despite our initial caution rating for Business One, we believe this solution will begin to show promise in its coming releases. SAP decided to acquire rather than 9 July

4 build a solution to address the needs of the small-business market. Business One is geared toward wholesale, distribution or service businesses of 10 to 250 employees. Business One contrasts well with SAP s traditional solutions, offering strong ease-of-use features and the ability to exchange critical data with mysap and R/3. However, Business One is still relatively immature and has significant functional gaps. In addition, Business One s sales and support channel needs improvement. For this reason, through 2004, Business One should only be considered by small businesses that: 1) require tight integration with established mysap and R/3 sites; 2) have decided they can live with Business One s functional gaps; and 3) have located and qualified experienced SAP partners. Prospective users must be aware that Business One is immature and susceptible to slips in delivery of promised functionality, and that its partnerships are generally unproven at this time. SAP s Technology Strategy (Rating: ) SAP entered the software infrastructure market in late 2001 with its mysap Technology offering (see SAP: A New Software Infrastructure Superpower? and Can SAP Win the Hearts and Minds of Developers? ). In the 18 months since mysap Technology s debut, SAP has made a number of strategic announcements that bring this technology strategy into a compelling position in the world of packaged business applications (see SAP Prepares to Launch Enterprise Portal 6 ). These announcements culminated in the January 2003 launch of the innovative SAP NetWeaver, which involved a substantial repackaging of established technology components. NetWeaver is now SAP s strategic platform for all SAP application products. Overall, this is an attractive technology strategy. Therefore, we rate it as promising. However, mysap Technology s success depends on SAP s large customers base understanding the product and its impact. With NetWeaver, SAP has embraced many of the latest technology standards, while retaining the technology strengths that it has built during the last decade. NetWeaver supports a host of opentechnology standards (including HTML, XML and Java 2 Platform, Enterprise Edition). NetWeaver is based on a conceptual framework Enterprise Service Architecture that supports Web services through a service-oriented architecture and many standard protocols (such as SOAP, WSDL and UDDI). In the months since this announcement, numerous interactions between Gartner and clients that are SAP customers have revealed that the majority of them simply don t understand SAP s technology strategy, however effective it may be. This means that SAP customers may miss technology-enabled business opportunities. All SAP customers face the challenge of building NetWeaver into their technical architecture (see SAP Products Impact on Enterprise Architecture ) to maximize business flexibility and agility, as well as minimize the overall life cycle total cost of ownership. In view of the complexity of SAP applications and technologies, this is a daunting task. As a result, customers will need help from experienced SAP product architects, who can: 1) clearly articulate SAP s technology strategy, 2) act as a trusted advisors to help formulate their architecture blueprint and 3) choose the right SAP product deployment/redeployment strategies. Customer Service/Product Support: As SAP transforms itself, user enterprises will find SAP to be a more-complex enterprise with a more-complex product line which will makes users SAP strategic planning and deployment efforts more difficult. For this reason, we rate SAP s customer service as caution. An increasing number of Gartner clients have complained about what they perceive as poor SAP product support. Approximately 60 of SAP s top accounts enjoy a gold card level of product support in the form of personal contacts within SAP s Active Global Support organization to help with support problems. Although this organization is well-staffed (2,000 employees in 40 countries), call volume is rapidly increasing because of SAP s expanding product portfolio. 9 July

5 A specific improvement in this support structure is a greater emphasis on testing and quality assurance during product rollouts. CRM 3.0 and R/3 Enterprise are following a ramp-up program in which products are released with limited availability. This method pushes products into production in companies that are willing to risk new product quality against early-release benefits. This should result in better product quality as products are rolled out to the masses. SAP is also in the process of providing optional, morefocused services to clients that require mission-critical support at a higher price. Pricing (Rating: ) When the implications of mysap Business Suite finally crystallize for SAP prospects and users, the debate will move to software licensing. We rate SAP s pricing strategy as caution. Current users should understand all of the SAP pricing options before moving to mysap products. Despite the flexibility of SAP s licensing strategy, it is generally confusing to users. More recently, questions regarding SAP s licensing strategy have surfaced from user enterprises that acknowledge that SAP is more closely scrutinizing their actual user count, as well as adding additional licensing options that will push current users to increase their contract size (see SAP Plans to Mine More Revenue From Its Installed Base ). In 1Q03, SAP added more licensing categories for users to compensate for specific situations, such as NetWeaver developers and transactions triggered by automated interfaces. Current SAP users will be unaffected by new license categories until they negotiate new licenses for SAP products. However, Gartner sees a trend in which SAP will continue to explore ways to mine more revenue from its current installed base. SAP Consulting (CRM Only) (Rating: ) Based on our research and reference checks, we rate SAP Consulting (SAPC) as promising ( Integrated Teams Are an Edge in mysap CRM Deployments ). Using SAPC for CRM implementation is suitable for enterprises that: 1) have clear, defined CRM strategies; 2) have a sufficient number of in-house technical (ABAP/SAP skills) and business expertise with SAP; and 3) are not looking to their services partner for program/project management or business and industry expertise. In general, enterprises that are planning mysap CRM implementations should complement the business process strengths of external service providers (ESPs) with the technical strengths of SAPC. Engagements should be executed as a partnership between SAPC, ESPs and the enterprise s business and technology resources. Enterprises must ensure that project roles and leadership are clearly specified. We advise user enterprises to carefully assess the consultants experience on projects, and to adopt a studied approach to skills transfer, regardless of whether SAPC or third-party ESPs are being considered. Related Research and Ratings: SAP R/3 Enterprise: Stable to Its Core Americas 2002 SAP ERP External Service Providers MQ SAP: Surprisingly Transformed but Even More Confusing ERP II/Oracle Escalation Wake-up Call Understanding the mysap CRM 3.0 Technology Customer Satisfaction With SAP s Product Support Service How Procter & Gamble Runs Its Global Business on SAP Rating Definition: 9 July

6 Strong Strong Negative Solid provider of strategic products, services or solutions. Customers: Continue investments. Potential customers: Consider this vendor a strong strategic choice. Demonstrates strength in specific areas, but is largely opportunistic. Customers: Continue incremental investments. Potential customers: Put this vendor on a short list of tactical alternatives. Shows potential in specific areas; however, initiative or vendor has not fully evolved or matured. Customers: Watch for a change in status and consider scenarios for short- and long-term impact. Potential customers: Plan for and be aware of issues and opportunities related to the evolution and maturity of this initiative or vendor. Faces challenges in one or more areas. Customers: Understand challenges in relevant areas and begin to assemble contingency exit plans as needed. Potential customers: Note the vendor s challenges as part of due diligence. Difficulty responding to problems in multiple areas. Customers: Exit immediately. Potential customers: Consider this vendor only if there are no alternatives. Acronym Key BW CRM ERP ESP PLM SAPC SCM WMS Business Information Warehouse customer relationship management enterprise resource planning external service provider product life cycle management SAP Consulting supply chain management warehouse management system Core Topic ERP II - Strategies, Applications and Technologies ~ ERP II, Supply Chain & Manufacturing 9 July

7 SAP Headquarters: Walldorf, Germany Web Location: 9 July