SAP Beyond the Edges of the Enterprise

1. SAP Beyond the Edges of the Enterprise Michael Dominy The Yankee Group Mdominy@yankeegroup.com

2. Agenda • Beyond the Edge • IT Spending Shifts • Edge of the Enterprise Research • Technology Drivers • SAP’s Response • Conclusions and Recommendations

3. Beyond the Edge: Definitions & Clarifications • “The Edge” • The Business Process and IT intersection between an enterprise and the outside world. • Includes the management of access to interaction between the enterprise and its customers, suppliers, or complementary business partners.

4. Beyond the Edge: The Opportunity • Reduce Inventories $117 - $293 billion • Increase Sales $83 - $166 billion • How? • Connecting, collaborating, and synchronizing with the extended supply chain

5. Beyond the Edge: Who’s Cares? (Enterprises)

6. Beyond the Edge: Who’s Cares? (Vendors)

7. Beyond the Edge: Application Characteristics • Edge applications • Automate business processes that require human or machine input from external partners • Integrate data and information from multiple heterogeneous systems inside and outside the four walls of an enterprise • SAP Netweaver and xApps as examples

8. Agenda • Beyond the Edge • IT Spending Shifts • Edge of the Enterprise Research • Technology Drivers • SAP’s Response • Conclusions and Recommendations

9. IT Spending Shifts:Away from Operational Backbones 75% Increase at the Edges!

10. Customers Suppliers Outbound Logistics Financial Services IT Spending Shifts:…Beyond the Edge Operational Backbone Inbound Logistics Marketing & Sales Customer Service Logistics Planning Mfg/Ops Procurement Engineering Finance HR

11. Agenda • Beyond the Edge • IT Spending Shifts • Edge of the Enterprise Research • Technology Drivers • SAP’s Response • Conclusions and Recommendations

12. Edge of the Enterprise Research: Research Sources • Interviewed more than 110 B2B decision makers in the past 12 months • Billions in revenue and technology spending • Surveyed 78 North American ERP users to • Validate the Edge budget shift • Identify key Edge business drivers • Inquire about ERP strengths and weaknesses • Finishing a Q3 Edge of the Enterprise survey of 300 end-users

13. Edge of the Enterprise Research: Phone Interviews • Results from 78 ERP decision makers at Global 2000 organizations • Interviews conducted in Q1-Q2 2003 • Conducted by experienced enterprise application analysts • Interviews averaged 45 minutes • Gathered detailed IT budget data, 2003 project data, vendor preference information

14. Edge of the Enterprise Research: Interviewee Demographics • Large Global 2000 organizations • Averaged $2.4 billion in revenue • Averaged 7,000 employees • Utility, telecom, manufacturing, wholesale, and transportation services were interviewed • 76% of respondents were manufacturers • Even split between process and discrete manufacturing • Concentration in high-tech and consumer goods manufacturing

15. Edge of the Enterprise Research: Interviewee Demographics • 61% of respondents run SAP R/3 • Majority of respondents on version 4.6 • Several running version 3.1 • None running SAP Enterprise 4.7 or Netweaver

16. Edge of the Enterprise Research: IT Budget Impact • Overall IT Budget • 64% increased IT budget from 2002 to 2003 • Average budget increase was 3.7% • Budget growth ranged from –6% to 23% • Edge Investments and Budgets • 95% increased investment in systems that require/enable browser- or machine-based partner input • Edge budget growth ranged from –3% to 300% • Average Edge budget increased 75%! • Average 2003 Edge budget totals $5.8 million • 2003 Edge budgets ranged from $440,000 to $66 million

17. Edge of the Enterprise Research: Budget Growth

18. Edge of the Enterprise Research: Average Edge Budgets

19. Edge of the Enterprise Research: Budget Drivers • Budget shift is driven by prioritization, not capital expenditure • Do more with less • Extend existing systems • Develop in-house • ROI in months not years

20. Edge of the Enterprise Research: Budget Analysis

21. Edge of the Enterprise Research: Budget Analysis • Most interviewees expect edge investment to increase substantially with economic improvement • Most edge investment is dedicated to customer facing systems • Among interviewees, suppler facing systems were secondary investment priorities • 300 end-user survey…

22. Edge of the Enterprise Research: Projects • Primary, secondary, and tertiary edge projects were captured and classified • Primary edge projects included • Web-based sales content delivery, order entry, pricing, order status • Machine-based order management • Collaborative forecasting • Collaborative logistics • Electronic catalogue • VMI

23. Edge of the Enterprise Research: Project Categories

24. Edge of the Enterprise Research: Objectives • Collaboration and Coordination • Cost reduction through collaborative planning and distributed order management and fulfillment • Sales and marketing content delivery • Inventory visibility and supply tracking • Common theme across objectives: • Strengthen relationship, integration and coordination with customers to improve service and reduce costs

25. Edge of the Enterprise Research: Vendor Preference / ERP Abilities • Interviewees were asked to rate incumbent ERP vendor’s ability to meet primary edge technology need (1 to 5 scale, 5=very high ability and 1=not at all capable) • 62% of respondents did not consider their ERP vendor as a solution to an Edge of the Enterprise technology need • Among respondents that rated their ERP vendor, average rating was 2.3 • SAP users rated SAP 2.4 for its ability to meet edge technology needs

26. Edge of the Enterprise Research: SAP Customer Example 1 • Company: Multi-billion dollar global consumer packaged goods company • Goal: Reduce logistics cost through collaboration • Solution: SAP + RedPrairie + Nistevo • Finding: SAP unable to meet edge requirements – Collaborative Logistics

27. Edge of the Enterprise Research: SAP Customer Example 2 • Company: Multi-billion dollar global beverage manufacturer • Goal: Collaborate with downstream distributors (forecasts, marketing & promotions, etc.) • Solution: SAP + Manugistics + Vignette • Finding: SAP unable to meet edge requirements – CPFR and Content Management

28. Edge of the Enterprise Research: SAP Customer Example 3 • Company: Multi-billion dollar global high tech manufacturer • Goal: Synchronize supply and fulfillment across the extended supply chain network • Solution: SAP + Synchronization Hub • Finding: SAP unable to meet edge requirements – Distributed Order Management

29. Edge of the Enterprise Research: SAP Customer Example 4 • Company: Multi-billion dollar global consumer products manufacturer • Goal: Collaborative Customer Business Planning • Solution: SAP+custom application+best-of-breed • Finding: SAP unable to meet edge requirements –Customer level sales, marketing and merchandise planning

30. Edge of the Enterprise Research: SAP Customer Example 5 • Company: Multi-billion dollar North American electric utility • Goal: B2B Procurement Exchange • Solution: SAP + SAP B2B Procurement Products • Finding: SAP able to meet edge requirements – SAP able to address transaction oriented supply- side applications where the SAP customer has significant power or influence

31. Agenda • Beyond the Edge • IT Spending Shifts • Edge of the Enterprise Research • Technology Drivers • SAP’s Response • Conclusions and Recommendations

32. Technology Drivers:Enabling Edge Initiatives • Plummeting hardware costs • Pervasive Internet access • Java • XML • Interoperability

33. Technology Drivers:Methodologies, Standards & TCO

34. Agenda • Beyond the Edge • IT Spending Shifts • Edge of the Enterprise Research • Technology Drivers • SAP’s Response • Conclusions and Recommendations

35. SAP’s Response • Experiences with Commerce One • Acquisition of TopTier • SAP xApps • SAP Web application server • SAP Enterprise Edition – Core versus Extensions • SAP Netweaver • SAP Adaptive Business Networks • SAP Licensing Strategies

36. Agenda • Beyond the Edge • IT Spending Shifts • Edge of the Enterprise Research • Technology Drivers • SAP’s Response • Conclusions and Recommendations

37. Conclusions • Demand is shifting from the core to the edge • 75% growth in edge applications and technologies • Integration and customization costs are falling • Edge projects are primarily customer-facing • Sales effectiveness and distributed order management • Most SAP customers have not been successful extending SAP beyond the edges of the enterprise

38. Recommendations • Establish a flexible architecture to support edge applications and initiatives but… • Balance integration costs carefully • Edge initiatives require a mix of internal and external integration involving people, process, and data • Validate interoperability claims • Ensure edge platforms and applications comply with Java, XML and Web services standards • Perform interoperability tests • Example: Test best-of-breed on Netweaver

39. Recommendations • Follow the collaboration continuum • Integrate  Optimize  Collaborate and Network • Leverage edge (composite) applications rather than building from scratch • Development, implementation, and support costs are too high to justify custom applications • Be skeptical when core vendors claim expertise beyond the edges of the enterprise • Managing network oriented business processes in fundamentally different than controlling internal activities

40. Thank You! Michael Dominy The Yankee Group Mdominy@yankeegroup.com

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42. Hosted by Audience Response Are you shift IT dollars and initiatives from internal technologies to the edges of the enterprise?