The agenda is looking good, even if I say so myself.  Pat Phelan is doing a lot of great research on competency centres, training and really driving down costs in operating ERP, Johan Jocabs brings strong local knowledge and some of the leading thinking on CRM, and Dan Sholler has the measure of NetWeaver and related technologies. As chairperson I get to do the raffle , talk about user experience options and give an overall positioning presentation. It will be a busy few days.

It will also be interesting as the event is a couple of days after SAP Sapphire in Orlando, so it will be an opportunity to see how (or if) SAP’s messages have resonated with the local customer base.  Some of SAP’s most innovative customers are in South Africa, and it is always good to see ingenuity of those organizations.  South Africans aren’t afraid to say it as it is, so it will be lively.

I have been involved with the South African ERP and HR  community for most of my working career, so it will also be good to see familiar faces and old friends.
As usual Lisa and her team do a fabulous job in organizing it. If you’d like to attend, drop Lisa a note via the website.

It will be great to catch up with family too. While I’m there I’d also like to hook up with any South African startups in the HR /ERP space, I’ve been impressed with what I have seen so far, but I’m keen to see more.  I will have a few days in Jo’burg  meeting clients  and I’ll be popping down to Pietermaritzburg to watch my brother run Comrades (a rather long jog of 89 kms).

John had this to say.
SAP’s year over year growth clearly benefitted from the acquisition of Sybase, which was not included in last year’s numbers and SAP’s growth was negatively impacted by changes in foreign currency exchange rates. However, net these two effects, SAP showed solid revenue growth in its core business, indicates the company continues to mend. Overall it is reasonable to assume that SAP has turned the corner and is positioned to deliver software revenue growth that will exceed the overall industry over the next 12 months. However, we believe that over the next few of quarters, growth will be volatile and SAP will face tougher year over year comparisons. Additionally, while revenue growth is returning, it is likely that it is driven by demand from demand from existing customers, building out their existing SAP installations and not likely from the new initiatives SAP has announced over the last few quarters. These initiatives are not likely to bear fruit until 2012 when they may show a meaningful contribution to revenue. Many of these new initiatives, such as SAP’s focus on in-memory computing, HANA, Business ByDesign, mobility, and analytics show great promise, but remain immature.

My thoughts.

This is part of the email I shared with the press once I’d seen the results. I’ll leave the clever stuff like currency and so on to John.

SAP has spent the last 18 months or so building a clearer vision for the company, reengaging with customers and employees, but it has not yet had any significant new product to sell. There is only so much on-premise ERP and Analytics that SAP can upsell to existing customers, and while this business remains solid, it has limits.

SAP’s newer products, in particular, HANA and Business ByDesign aren’t yet delivering a significant financial contribution, and the time is nearing where they need to do so. SAP also hasn’t yet shipped any joint product with Sybase, so deep synergies there aren’t yet evident there either. SAP is spending money on R&D and marketing, in anticipation of success with these offerings.

SAP’s marketing talks of on-premise, on-demand and on-device, but for now on-premise is the still paying the rent.

• The flat subscription revenue is disappointing, given the rapid growth of the SaaS players such as SuccessFactors, Salesforce.com and Workday. SAP has been slow to deliver on its Line of Business SaaS offerings too.
• Mobile in an SAP application context is still a story rather than revenue generating product.

SAP has to do three things in the rest of 2011.
1. Turn HANA and in-memory from a compelling concept into real revenue.
2. Show that it can scale Business ByDesign and deliver its other SaaS efforts.
3. Prove out the value of the Sybase acquisition by shipping joint product that customers buy.

Sapphire in May will be an opportunity to assess whether the stronger vision of 2010 has turned into real product that will generate revenue. SAP has had a vision but now we need to see engineering delivering on it. What we said in Q4 remains valid.

SAP has a bolder strategy than a year ago, and a significantly stronger product pipeline. In 2011, SAP has to show that its new products, HANA, ByDesign, LOB on Demand and mobile can deliver meaningful revenue. SAP’s increased guidance illustrates the improving macro conditions and SAP’s management’s belief that it has an improved product portfolio.
There are now many moving parts in SAP’s strategy, and communicating the on demand, on premise and on device vision in a way that customers can clearly grasp will be vital. For the first time in a while, SAP has some genuine new product opportunity. The true judge of innovation, though, is not whether vendors label products innovative, but how customers do.

We all are thinking on similar lines. I’d like to see some real revenue impact from HANA this year, but my colleagues are perhaps  a tad more cautious. Clients interested in knowing more about HANA should set up a call with Donald.

I’m looking forward to Sapphire in a couple of weeks time.  LOB on-demand is on my mind, as is Gateway, Duet Enterprise, Sustainability, mobile beyond an iPad demo and of course the HCM applications.  I’ll hopefully have a bit more time to catch up with the partner ecosystem too. Clients might want to check out the recent Cool vendors in the SAP ecosystem note. By the way,  I have note coming out shortly on the German SAP HR congress, which is, come to think of it,  relevant beyond just the German market.

It has been fun and challenging, I have learnt a tremendous amount about SAP, even though I’d worked there for ages. It has given me insight into Gartner too. I couldn’t  have wished for a better start at Gartner.

SAP has changed a lot in the two years, and it has probably been SAP’s most challenging period in its history. Coordinating the efforts of over 100 analysts that cover SAP has been eye opening.  Gartner’s breath and depth of SAP coverage is without peer, and has been a privilege to lead that effort.

Donald Feinberg will be taking over from me. He knows more about Database theory, DBMS and Data Warehousing than anyone I have ever met, and this is rather appropriate with SAP’s strategic plans for ICE, the in-memory computing engine, aka newDB, the juicy inside bit of HANA. He brings wealth of experience to the role. With Donald our SAP research agenda is in good hands.

I’ll not move away from SAP entirely, as I still cover them as part of my ERP / HCM agenda. I’ll be working closely with Donald as he gets to know SAP’s inner workings. I’ll still take client inquiry on SAP, and I’ll be part of our SAP research community. However, I’ll now have more time to focus on other research interests such as social software in the enterprise, workforce analytics,  data protection law, design/hybrid thinking, usability and pattern based strategy. There is a world beyond SAP and I need to broaden my focus.

I’ll take this opportunity to thank our clients, all the folks at SAP, Gartner, the SAP ecosystem, press and broader analyst community that I’ve worked with in the role. I’ll see some of you at CEBIT this week.

I listened to SAP’s press conference this morning, and John and I also spoke with SAP executives.  I spoke with a number of journalists this morning too.  Here is the gist of what I had to say to the press.

SAP has done a solid job in 2010 of selling its traditional product line. Demand for ERP has ticked up with the economic recovery and SAP has benefited from this. Analytics and BI were also strong performers, for example, in Germany.

The SAP field organization continues to execute well, and SAP has worked hard to improve customer and employee engagement in 2010.  Overall, most of the performance was due to better macro environment, contribution from Sybase and an increase in pricing.

SAP has a bolder strategy than a year ago, and a significantly stronger product pipeline. In 2011, SAP has to show that its new products, HANA, ByDesign, LOB on Demand and mobile can deliver meaningful revenue. SAP’s increased guidance illustrates the improving macro conditions and SAP’s management’s belief that it has an improved product portfolio. 

There are now many moving parts in SAP’s strategy, and communicating the on demand, on premise and on device vision in a way that customers can clearly grasp will be vital.  For the first time in a while, SAP has some genuine new product opportunity.  The true judge of innovation, though, is not whether vendors label products innovative, but how customers do.

BTW, .Clients can see more SAP analysis by going to the SAP  Vendor Rating on gartner.com, or set up an inquiry call.

The headline number of 20% revenue growth seems impressive but strip out the Sybase numbers and it is very similar to Q2. You can read what John Rizzuto and I blogged about Q2 here.

As Per Q2, for the deeper financial analysis I’ll defer to John.  

Core software product revenue again saw double digit increases, which signals that end-market demand remains relatively robust and SAP is benefiting from the increase in spending.  With double digit growth year to date thus far, it is safe to say that SAP has gained market share or growing ahead of the market.  However, was is troubling is SAP’s difficulties in expanding operating margin or meeting targets it has set.  While not troubling, i.e., it is still very fiscally fit, it does speak to the challenges the company is having in managing its business to create incremental leverage – although it is self evident from Wall Street’s perspective why we want comparable margins, it also matter from a competitive standpoint as well.  Specifically, it begs the question from any industry watcher, what is it that enables the other megavendors (i.e., MSFT, IBM, ORCL, even HP and Cisco) to run their business at operating margins, on average, 10%-15% higher? 

Gartner Clients might want to look at some of his other SAP related research.

Personally, I’m less concerned with the margin question, and more interested in the areas of customer satisfaction and new product innovation, as that is what I spend a good part of my day dealing with. 

Snabe and McDermott both continue to paint a more positive and upbeat picture than their recent predecessors did. Both Sapphire and Teched were more energized than my in-memory can remember, as indeed are the last couple of  earnings calls. The infectious exuberance in SAP-Land continues. 

The anti-Oracle posturing has its place on earning calls, and trading taunts makes for good headlines. Nevertheless, it is not nearly as relevant for SAP customers as many observers think. 

The challenge over the next 2 quarters is to show how the investment in newer technologies and applications is having a meaningful impact on the numbers. The market is the arbiter of innovation, not the vendor. 

At the same time, the existing customer base needs to be brought along to the party. This means clear communication is at a premium. This is improving, but as the UK and German user groups note, there is still work to do. 

SAP has a plan. Now it all comes down to execution. 

photo via cc of Svenwerk. Thanks.

Earlier this year, SAP did a good job at Sapphire in laying out more compelling vision. I expect Teched to be about adding some details to that vision, and I’m looking of evidence of execution: These are the things I’ll be scrutinizing.

1. By Design progress, both in terms of customer adoption and as a platform for SAP to build new on-demand applications.

2. What is “orchestration” exactly?

3. River and the other on-demand efforts. What’s really flowing?

4. Mobile strategy. Apps, ecoystem, costs.  Beyond the hype.

5. SAP and databases.  newDB, Sybase, in-memory etc. Timings.

6. BW and in-memory impact.

7. Gateway, UI, UX and future of SAP portal.

8. NetWeaver 7.3 details

9. MDM, BPM impact on existing customers

10. Impact of “cloud” on Business Suite.

11. Running SAP cheaper. SAP and ecosystem tools that reduce the day to day running costs of SAP.

From a partner perspective, I’m looking for alternative UI work, or UI enhancements, such as RIA, iPad etc.  Making SAP easier to consume is a research theme for me and several colleagues over the next quarter. Also anything that makes SAP cheaper to run.  I’m also very  interested in chatting to users to gauge how they see SAP’s plans and execution. 

If you want to catch up at Teched, drop me an email, or tweet me at @vendorprisey

Gartner clients may wish to read our note on the state of NetWeaver. SAP NetWeaver: The past, present and future.

Many organizations are unsure what NetWeaver is, or what it will become. What SAP has delivered differs significantly from the original vision. Rather than the enterprisewide middleware platform SAP envisioned, it’s best-suited to deploy SAP applications and integrate SAP applications and processes.

SAP is showing modest acceleration off the bottom. The worst is seemingly behind it, but isn’t roaring back just yet.  No reason not to be constructive, but we are cautious about becoming too optimistic too fast. The quarter is evidence that SAP is continuing its gradual recovery from the economy, and, more importantly, repairing its image and relationships with end users and customers.  SAP’s rebuilding of its image in the eyes of its customers is obviously the most important thing for it to successfully execute its strategy, as in order to grow, it needs to up-sell an awful lot of stuff (Bobj and Sybase).  The anecdotal evidence shows it is regaining trust, but there is work left to do. 

It isn’t really gaining share in the sector from what others apps vendors are reporting. If you look at the HCM space, the leading SaaS HCM vendors have all reported strong numbers, and their growth is coming at the expense of the ERP vendors.

Even with the aid of a strong currency tailwind, the US  numbers were rather good. Germany performed well, the return of Kleinemeier to lead the region has had a positive effect on sales performance and execution, and customer sentiment.  The numbers in the rest of Europe are concerning, but may be a result of macro issues beyond SAP’s control.

In January, we said this about SAP.

Regardless of SAP’s organizational structure, the biggest challenge it faces is revitalizing its position as a technology leader without adversely affecting the performance of its current product portfolio. In undertaking this daunting task, SAP will benefit from its strong foundation, which has made it one of the few companies able to deliver a global, integrated suite of applications that covers a broad range of functions across many industries. SAP has previously succeeded under similar circumstances, such as the R/2 to R/3 transition, in which SAP managed to protect technology investments while also offering technology advancements. To succeed this time, SAP must walk a fine line between remaining overly focused on short-term sales and margins and becoming overly invested in pursuing leading technology that may not immediately benefit its installed base.

SAP’s field organization continues to a solid job at selling product that SAP has had for some time, but SAP’s real test to roll out some compelling new product. The second half of the year will be much more interesting. SAP needs to relaunch Business ByDesign well next week, and then show solid early adoption by year end. SAP also needs to clearly show how Sybase will add to SAP’s short term and long term growth. Sybase must bring more to SAP than just the mobile upsell.

For Gartner clients, I’d suggest you have a look at the two notes. Sybase acquisition, more than mobile. and SAP’s Purchase of Sybase Adds Complexity to the Mobile Software Market and our Sapphire coverage outlines SAP’s plans for onpremise, on device and on demand.

The session I’ll be leading will digging into UI and usability options and challenges. We will present an extensive survey we have done on SAP UI perceptions, and look at options with SAP and third party tools.

I’m receiving an increasing number of client calls about UI/UX options, be it making the best out of SAP, or alternative tools that augment or replace the standard UI experience. There has been a big growth in tools and options to improve user experience, especially for self service and transactions like sales order entry.

I’m expecting to write some research with Jim Murphy on SAP UI options and roadmap later this year too, so I’m on the look out for Ui innovations in the SAP world.

There is significant appetite for a better user experience, but it is easy to get carried away with the tools.  A client research note published by my colleagues Ray Valdes, Eric Knipp and David Mitchell Smith on HTML 5 and Flash makes for sobering reading. I’ll quote a bit that is relevant here.

The average enterprise will continue to make ineffective use of any and all available UI technologies. The root problem is not lack of powerful UI technology. Instead, the root causes for a suboptimal user experience consist of lack of appropriate process and governance, and lack of a genuine commitment to a quality user experience. Such a commitment would lead organizations to adopt a user-centered, usability-oriented development process. Rather than taking these steps, we see a lot of projects that are “stakeholder-driven” (i.e., driven by internal politics). Very few organizations center development around user needs by relying on objectively measured data about user behavior. Most enterprises don’t seem to care enough about the user experience to change their habits (in terms of processes that are developer-driven, vendor-driven and stakeholder-driven, rather than user-driven). The principles of creating effective user experiences are well-known among successful external-facing e-commerce or consumer sites, such as Amazon, eBay, Expedia or Facebook. Unfortunately, it will likely be a long time before these principles become part of the average enterprise skill set.

Developing a user experience that delights your users is not as much about the technology as it as about design. It is easy to knock the user experience of most standard software.  It is a lot harder to build something better yourself.

I hope it will be an interesting session. After our workshop the group and I  will go over and meet some of the SAP user interface team. I expect that meeting won’t be short of questions.

If you are interested in learning more about the Enterprise IT Leader SAP Peer Community, drop george dot martin at gartner dot com an email.

In the meantime, I’ll give you my personal take.

I listened to Hasso Platter’s conference call, while sitting in the Frankfurt airport. I’m on the way to a presentation on SAP roadmaps for clients in Manchester (my slides now need some adjustment).

Hasso Plattner made it clear that it was his decision to change the CEO and he took some of the blame for the customer and employee dissatisfaction issues that have dogged SAP over the last couple of years. He even managed to go the offensive, positioning the new technologies his labs are working on. In a sense it was vintage Hasso. He spoke with passion, clarity and determination.

Today’s announcement highlights the vital role Hasso Platter still plays at SAP. SAP has been unable to find a successor to fill his boots. We will need to wait and see if the return to the two CEO model will work as it did with SAP’s founders. It is a tougher challenge this time around.

SAP succession plans were shook up several years ago when Shai Aggasi left SAP, and it has yet to really recover them.

SAP’s problems are as much internal as external. SAP’s workforce need a big hairy engineering goals and the room to innovate and take risk.  The field want to sell innovation, not maintenance. SAP needs to cut away the layers of bureaudisney that have stifled innovation moving from lab to customer. Growing margin doesn’t excite software developers or customers. SAP management seemed to forget that. It took Hasso to remind them.

SAP’s challenges are bigger than simply replacing the CEO. It needs to recover its geist. Today was the first step, but Hasso alone can’t restore SAP to its past growth.  The new co-CEO’s,  Jim and Bill, have much to do. This is complicated.

Last week I suddenly felt like one of those people you meet in IT who keep telling you that computing hasn’t really changed since punchcards or Fortran, and that everything just repeats itself. Either that, or I had stumbled upon the flux capacitor. I shuddered briefly.

Let me explain myself.

Just after I joined SAP in the mid-nineties, PeopleSoft won a significant deal at Siemens. This really shook SAP up, and led to significant investment in the HR part of R/3, especially for the global market.

Then PeopleSoft stumbled, sucked into the joyous complexity of German payroll.

A few years later, SAP won back large parts of the account. I didn’t really realise it at the time, but SAP was pretty agile in its response to the loss. It had long term positive benefits for SAP’s HR product.

At first sight this month’s win for SuccessFactors seems remarkably similar.

But history doesn’t always come around the same way. For history to repeat itself here, three things need to happen:

1. SuccessFactors stumbles.

2. SAP delivers a comparable offering via SaaS

3. SAP convinces Siemens to change back.

SuccessFactors today is more globally aware than PeopleSoft was in the mid-nineties, and it has the chance to learn from history. It has a broad European customer base, and well established operations here. It is also steering clear of German payroll.

In the mid-nineties, R/3 was already on the way to dominating the client/server ERP market. Today SAP is dabbling with SaaS in various forms, but I do wonder if it will react to this with the same agility and focus that it did back then. Also, the Siemens of today is different from the Siemens then.

Earlier this year I wrote a note about the SAP German HR congress ( Gartner clients see) Observations From SAP’s German HR Congress (G00165965), 06-MAR-2009 One of the things I said was.

"German organizations are in a good position. SAP perceives that it has significant competition in the talent management space and is strengthening its products, while best-of-breed vendors see an opportunity to gain an increased foothold in the market. There is nothing like a DAX 30 company selecting a best-of-breed vendor to focus the minds of SAP management and its development organization, as no organization likes to lose at home.

We will be watching with interest.