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How SAPs Business Model and Strategies Made it


the Global Business Software Leader?
















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SAP is the world leader in enterprise software and software-related services. It was
founded in 1972 by 5 computer analysts from IBM. In 1972, SAP unveiled an instantaneous
accounting transaction processing program called R/1, the initial enterprise resource planning
(ERP) system. Its strategy is to target large multinational companies and focus on
development of its ERP software and to outsource (to external consultant). SAPs
outsourcing consulting strategy allowed it to penetrate global markets quickly and eliminated
the huge capital investment needed to employ the thousands of consultants required to
provide this service on a global basis.
In 1981, SAP introduced its second-generation ERP software, R/2. The R/1 platform
had largely been a cross-organizational accounting/financial software module; the new
software modules could handle procurement, product development, and inventory and order
tracking. R/2 platform has not only contains many more value-chain/business process
modules, but also linked its ERP software seamlessly to existing or legacy databases and
communication systems used on companys mainframe computers. This allowed ERP
through a company at all levels and across all subunits. In this generation SAP strategy is
change previous strategy for customer base, investment in Research & Development and
focus on outsource external consultants. SAP did not develop its own database management.
Oracle began to rapidly develop its own ERP during 2000s.
This push to make R/2 software the global industry standard for the next decades,
SAP also developed new middleware software that will allow the hardware and software
made by different global computer companies to work seamlessly together on any particular
companys IT system. The reasons to change its strategy are its German founder engineering
mindset, emphasized technical innovation not consulting service and SAP became product-
based not a customer-focused company. SAP spent 30% of gross sales on R&D. In this
period, the top managers in SAP were not experienced business managers who understood
the problems of implementing a rapidly growing companys strategy on a global basis. SAP
recognized that the way value-chain activities and business processes are performed
differently from industry to industry because of different in manufacturing and business
processes. SAP also tried to accommodate the needs of companies in different kinds of
industries.
In 1992, R/3 or third-generation platform is introduced. R/2 platform offers seamless,
real-time integration for over 80% of a companys business process. R/3 system was initially
composed of seven different modules: production planning, materials management, financial
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accounting, asset management, human resources management project systems and sales &
distribution. R/3 met the diverse demands of global client. SAP realized that for its sales to
expand quickly it also needed to address the needs of small and medium sized businesses
(SMBs). To earn from SMB customers, SAPs engineers designed the R/3 platform so that it
could be configured for smaller customers as well as customized to suit the needs of a
broader range of industries. R/3 could operate with whatever kind of computer hardware or
software (the legacy system) a SMB was presently using. SAP strategy in this generation is
far outperformed its competitors product in technical sense and allowed to charge a premium
price for new software. SAP believed that competitors would take at least 2 years to catch up.
It goal was to make its customers to switch to its new product. Establish R/3 as the new ERP
market standard in order to lock in customer before competitors offer. This strategy was vital
to its future success because of the way an ERP system changes, there are high switching
casts that customers want to avoid.
The problems with its policy of decentralization soon caught up with SAP because
demand for its product was increasing so rapidly, it was hard to provide the thorough training
consultants needed to perform the installation of software. The companys mission was to
supply software that linked functions and divisions rather than separated them, and the
characteristic problems of too much decentralization became evident throughout SAP. SAP
slows down these problems by developing job description and rewarding system for its
employees. Increase loyalty of their technicians and motivate employees and keep them loyal
to company. Recognizing competencies in the production of state of the art ERP software,
SAP became clear market leader in its industry and 4
th
largest global software company,
despite its problems in implementing. Several emerging problems posed major threats to its
business model by development of the internet and broadband technology. Those became
important forces in shaping a companys business model and processes in the future.
In 1997, SAP sought a quick fix to its problems by releasing new R/3 solutions for
ERP internet enabled SCM and CRM solutions, which converted its internal ERP system into
externally based network platform. SCM known as the back end and CRM known as the
front end of the business. In 1998, SAP listed itself on the New York Stock Exchange.
With all growing business the need to management the fit between its strategy and structure
had become its major priority.

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