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What next for SAP Business ByDesign?

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21st Sep 2009
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For nearly two years, German ERP software giant SAP has been making noises about its new Cloud application, Business ByDesign. Rainer Zinow, the SAP vice president responsible for the product recently gave a progress report to BusinessCloud9.com editor Stuart Lauchlan. 

The development of SAP's web-based Business ByDesign ERP system has become one of the computer industry’s great soap operas. When it launched in late 2007, SAP boasted the product would generate $1bn in revenue by 2010. By May last year, it announced a change in plan as it reduced its annual investment in the project by around €100m and lengthened its roll-out schedule by 12-18 months.
While rival Cloud application developers such as NetSuite’s Zach Nelson have sniped at SAP’s inability to compete in the new software market, SAP has been testing the application with a pool of 90 pilot customers in China, India, Europe and the US.
At a recent SAP event in London, Rainer Zinow, SAP's senior VP of Business ByDesign, gave a progress report on how the prototype application. While it continues to be burdened with major corporate expectations, wider promotion and sale said of BBD won’t happen until SAP’s early adopter programme has produced sufficient "referencing accounts" to confirm the program’s viability.
According to Zinow, the first test users are into the third wave of their implementations. The initial functionality catered for manufacturing businesses but service industry customers in Europe and the US had different priorities.
Rainer Zinow, SAP vice president, Business By Design“From the point of view of the professional services provider customers, the key thing was to strengthen the integration between CRM and project management. We wanted be able to document a lead that someone gets at a trade show and convert it to an order, then be able to report back and do the billing, but all against the CRM order,” explained Zinow (pictured right).
“We want the whole process to be as automated as possible. We want to have complete transparency both from the ordering perspective and to have tight integration between the CRM and the project management.”
Another area where the test user base has helped the company refine the application is in the environment it provides for senior executives to interact with the system.
 “In the larger enterprise world we're used to, when you get above a certain level of management you just don't touch the systems. But in the small and mid market firms, CEOs tend to say ‘this is my system’ and there is no filter layer between them and the system. So we wanted to offer full blown corporate performance management using the capabilities we get from Business Objects.”
While the needs of CEOs and CFOs may be accommodated within Business ByDesign, the hosted application presents a different challenge to IT managers, who may feel threatened by the loss of direct responsibility for computer operations.
According to Zinow, however, “Many CIOs have redefined themselves as the chief process officer. These ones couldn't care less what kind of box they use, they just want transparency of approach about how they envelope their processes going into the future. In mid market companies, it can be a priceless advantage not to have an IT department.
“I think we will see more companies looking more at the idea of going for a service-type of model. The extreme of that is the complete Business Process Outsourcing approach, but then you will have all the variants in between.”
The real value proposition for Cloud Computing relates to the system’s peak workload, he explained. “A lot of the time it doesn't operate at peak... You base your model on average loads, then you inform your Cloud provider that you have a new peak, move your slider to the right and pay for that peak. That to me is the real advantage of the Cloud.”
There are also issues of strategic and tactical thinking to be considered, Zinow added. “You need to ask whether it is a tactical or a strategic buy that's going on. The tactical buy is when you have the new head of sales who comes in and asks the most trivial questions about the pipeline and gets nothing back. So he goes and talks to the CIO who says that they can sort this out and will deliver something in three years’ time. That's the moment that the head of sales says 'no' and decides he needs a tactical solution. So he goes out and buys in some Salesforce.com or whatever.
“The other sort of purchase is the strategic buy. This is where you say that we are a mid-market firm in a particular business and that business is not running IT. I just want IT that helps me to run my business and to get transparency on my pipeline. These are the people who are going to buy into SaaS [software as a service] because it helps them to do that strategically.”
A culture shift for SAP?
There is also the question of how well the move to Cloud Computing can work for SAP itself. The firm has been open in its admission that the Cloud approach means a change to its revenue stream and business model. SAP is getting to grips with this, Zinow argued, although he conceded that it still needed to convince the wider market.
“One of our customers in the US was concerned that we had our maths wrong. He said he couldn't get an IT staff in-house for what we were charging for BBD over a year.
“But the SaaS model by definition is not commercially less attractive than the up-front model if you calculate based on a seven-year horizon. Any annuity-based business model has a substantial advantage built in as it can take a lot of the bumps out of the road. Can we afford to set up this new business model? Yes, but it will take five years before it is equally beneficial to us. It's a challenge that we need to manage. At the moment I am optimistic that we can afford to build up a SaaS revenue model and for now cannibalisation is not a big issue.”
SAP will tread carefully when it comes to selling BBD to its existing users, but the idea is no longer completely out of bounds.
“If one of our installed base comes to me and asks me to sell BBD to them I'm not going to say no,” admitted Zinow. “We know which segment of the market we should sell into and we know which of our product offerings is best suited to various customers. If company says they need to roll out a system to 10 or 15 countries, then BBD is not the product for them. If a company needs deep pharmaceutical industry expertise, then I wouldn't recommend BBD. But if they're a professional services provider, such as a law firm, then I would say that BBD should be of interest.”

An extended version of this interview is available on BusinessCloud9.com.
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