The company Hasso Plattner cofounded 26 years ago isn’t a household word like Apple Computer, IBM, Intel, or a host of other leading high-tech names. But make no mistake, in the world of business software SAP AG is a giant on the same scale as Microsoft and Computer Associates.
Plattner, 54, cochairman of Walldorf, Germany-based SAP along with Henning Kagermann, isn’t fazed by his company’s low profile in the U.S. “America is technology-crazed,” observes the intense, affable software executive. “But it’s more difficult to talk about applications.”
Indeed, when it comes to enterprise software applications used to keep track of the operations of large companies anywhere in the world, SAP is the leader. It holds about one-fourth of the market, well ahead of such well-known competitors as PeopleSoft, Oracle, Baan, and J.D. Edwards. SAP’s flagship business management system, called R/3, is used by more than 2 million people at 16,000 plants and offices around the world. Companies depend on R/3 to help manage their customer orders, production, inventory, invoicing, accounting, and human resources.
That dominance has paid off in stellar rates of growth in both revenues and profit for SAP. Its sales skyrocketed from about $660 million in 1993 to $3.5 billion in 1997, and sales for the current calendar year are expected to approach the $5 billion mark. Similarly, net income has zoomed from about $90 million five years ago to about $550 million last year.
But for SAP, competing in an always-fickle, ever-competitive market with new trends and technologies replacing old ones every few months, success wasn’t always a given. As recently as 1992 SAP found itself locked in a struggle for the North American market with other formidable competitors, most notably the then-market leader, Dun & Bradstreet Software. At that time, both software firms sold applications that ran on mainframe computers, but D&B’s sales in the U.S. were far greater than SAP’s.
It was a watershed era for business computing. Both D&B and SAP, as well as other competitors, were working to develop new systems that would run on smaller computers called servers. These machines could distribute information over corporate networks to desktop computers.
Plattner was in charge of SAP’s largest development effort ever — the R/3 project. It was a massive $200 million campaign involving hundreds of software developers. SAP could have taken its time and waited to introduce the software until R/3 was fully fleshed out in terms of deep functionality for all applications in the product family. But it didn’t.
At the time, Plattner thought he had no choice but to bet the company on R/3. “It was a necessity,” he recalls. “It wasn’t a certainty it would work. But if we didn’t, we’d have ended up like Cullinet or D&B.”
In a preemptive first strike, SAP launched R/3 at its North American customer conference in the fall of 1992, not only creating an industry stir by surprising the market, but also signing up scores of new customers. “We got close to 200 customers in the first year,” Plattner says.
In the ensuing years, SAP pulled away from D&B, which later was sold by its parent firm, and easily outdistanced others in the market. Today SAP’s share of the market for business-applications software that runs on client-server networks is 24.9%, according to International Data Corp., an information-technology research firm in Framingham, Mass.
Don’t Become Road Kill
Even today, one of Plattner’s key roles is to continue to advance SAP’s ongoing software development programs. The goal is to ensure that the industry leader for enterprise-resource-planning systems doesn’t blink and become road kill for some faster-moving competitor.
In hindsight, SAP’s early introduction of a client/server-based software package for managing enterprise systems proved to be the single most important software product launch for business since MS-DOS. Even Microsoft’s Windows NT, which suffered through a slow, painful gestation before finally taking off, didn’t experience the swift success that characterized R/3.
As the man behind the product’s development from 1988 to 1992 and its presentation to the critical North American market, Plattner, perhaps more than any other SAP executive, is responsible for SAP’s continuing success. “He is the visionary of the company,” says Ed Toben, vice president in charge of global IT at Colgate-Palmolive Co. in New York, a major R/3 customer. “SAP is smart. They understand their business — they know they have to keep moving and not sit on their success.”
But Plattner isn’t solely responsible for SAP’s dominance, Toben believes. “He’s also got a good organization. The development organization in Germany that we work with on these new directions is very good.”
Plattner agrees. “Our management style is consensus-based,” he says. “We have a lot of intelligent debate. It’s not that the ideas are all mine — they are from all of us. Dictatorship is always faster, but we thrive on exchanging ideas, debating, and honing our proposals. It’s not that I intend to run every aspect of the company.”
Adds Kevin McKay, CEO of SAP America Inc., based in Wayne, Pa., “He’s very open. You can challenge him on his ideas. He enjoys a good dialogue with the software developers. . . . He’s probably one of the most intense Socratic persons I’ve worked with. He has a penchant for asking why. He challenges the most fundamental assumptions. It’s a very unique style.”
Although he appreciates the technology, Plattner is always quick to insist that it provide business benefits. “Hasso doesn’t get so caught up in the technology that he doesn’t relate it to the business,” says McKay, who reports to the cochairman in the latter’s role as chairman of the Americas division.
The accessible cochairman also is known within SAP for eschewing protocol and going straight to the source, whether it’s a software developer, a country manager, or an SAP customer. “He does a lot of things directly,” says McKay. “He wants to go to the source. As a result, some country managers get a little flipped out when a customer calls and says, ‘Your chairman was here yesterday, and he asked me to follow up with you.’ “
Nor is the close connection with customers that Plattner strives for lost on them. They almost invariably tend to give the software firm high marks for its technology direction.
Toben, for one, says one of the main reasons Colgate-Palmolive chose SAP was its clear technology leadership. “Where they’re spending their R&D money is critical to us,” he says. “Our expertise is making consumer products. We’re not a technology company. We try to work with a technology company on their R&D. Plattner is right on with where they are taking the technology.”
Plattner feels the constant pressure of each year having to come up with something new, something different, something the competition doesn’t yet have. “SAP clearly is at one of its points in its history where it has to announce something important,” he told a crowd of 15,000 packed into the Los Angeles Convention Center for this year’s SAPphire customer conference in September.
One year, it was SAP’s decision to enter the supply-chain optimization and planning market. Another year it was the launch of R/3 to run on the popular IBM AS/400 midrange computer.
This year the “something important” was actually two things — a plan to simplify the software so that more business people in a company could use it and a second initiative to build complete software packages specifically tailored for different industries. Regarding the latter announcement, Plattner says, “We want to provide a complete solution for various industries.” He added that the generic solution “is not enough anymore. We could become the bottleneck if we do not support the key processes in a given company.”
SAP is offering something called Solution Maps, essentially blueprints for particular industries dealing with IT issues related to product design, planning, sales, procurement, manufacturing, distribution, and customer service. As an example, Plattner explains, “Companies can look at these Solution Maps to see what they need to do with their IT to enter a new market.”
On the issue of greater ease of use, Plattner confessed that he had experienced difficulty using his company’s software. “I’m not using the software anymore because it’s too complex,” he admitted at the SAPphire conference.
For the uninitiated, SAP’s R/3 software is Windows 98 on steroids. People who “know” — i.e., can install and manipulate — SAP are in such demand worldwide that they command six-figure salaries. And even people in companies that use SAP must receive extensive training to learn to use the software.
The result is that most executives and managers have decided, rather than use SAP themselves, to delegate its use to others down the line. “A lot of users delegated the software back to others, such as secretaries,” says Plattner. The result, he says, was that “we did not fully achieve what we wanted to do. We did not fully succeed in distributing all functions down to the users. The usability of the software is still not good enough. We have to get closer to the user.”
Toward that goal, SAP last summer introduced its Management Cockpit and Strategic Enterprise Management (SEM) initiative, efforts to provide managers and executives with more performance-related business information. Until now, Plattner says, SAP’s “comprehensive menu of R/3 is far too much for them. With the Management Cockpit, we prepare and offer information in a comprehensive fashion. All these applications have a user focus.”
Convenient Business Reporting
One focus of SEM is more convenient business reporting. “For many years, we did not understand that our reporting was not convenient enough,” says Plattner. SEM features include corporate-performance monitoring, stakeholder-relationship management, business planning and simulation, and business consolidation. Again, as with the genesis of R/3, the SEM initiative has been Plattner’s brainchild. “A lot of SEM came from Hasso,” says McKay.
How does one manage a company whose headquarters is in Germany, but whose largest, most lucrative market is in the U.S.? For Plattner, who also serves as chairman of SAP America Inc. and is in charge of the SAP Labs, an R&D center in Palo Alto, Calif., the answer was simple. While some executives are bicoastal, he’s bicontinental, maintaining two offices, one in Walldorf and one in California. He spends roughly half the year in each.
A multibillionaire, Plattner is notoriously idiosyncratic. He not only golfs, plays tennis, and sails his boat “Morning Glory” in competitive races, but also windsurfs and snowboards. He once opened a SAPphire conference by bounding out of a cloud of smoke onto the stage, where he belted out a Rolling Stones tune on an electric guitar.
That trait of doing things his own way was one of the reasons Plattner and four colleagues started SAP in 1972. After graduating from the University of Karlsruhe with a master’s in communications engineering, he joined IBM Corp., working in the Mannheim office selling computers. Four years later, he and two others left the company after finding their idea to create a new standard software for business — as opposed to custom-developed applications — fell on deaf ears.
“IBM said, ‘No, no, we have labs to do this development,’ ” Plattner recalls. ” ‘Go sell computers. Or go help install computers. Other people will take care of software development.’ “
Why Manufacturers Go For SAP
To understand why so many U.S. and global companies have purchased SAP software, take a look at Colgate-Palmolive Co. Five years ago the company operated with many different software systems that didn’t communicate, were difficult to integrate, or lacked flexibility to accommodate change, such as the move to the euro currency in Europe. Colgate-Palmolive also wanted to simplify processes and consolidate some activities. Finally, a key business goal was to streamline the supply chain, get rid of bloated inventories, and speed up the order-to-delivery process.
Enter SAP. Colgate-Palmolive is installing software that automatically integrates information across various systems, as a standard for business transactions worldwide. The consumer-products giant is already using SAP to manage about 55% of its $9 billion worldwide empire with 2,500 employees currently using the software. Chief information officer Ed Toben expects to have three-fourths of the company running on R/3 by mid-1999. The firm’s goal is to wring as much time and cost out of its global supply chain as possible, he says.
The company already has reduced the time from purchase order to product delivery from 14 days to five days on average. “We’ve achieved significant reductions of inventory, working capital is at the lowest level ever, and receivables have been cut by one-third,” Toben says. Other benefits are that the new systems the company is installing are both Year 2000 and euro compliant.
Besides all that, Colgate-Palmolive is using SAP to help it simplify its operations. The company manufactures its products at 25 plants worldwide. “We wanted to reduce our SKUs and eliminate the lower-margin ones. The idea is to reduce and consolidate, to simplify processes. We want to take the complexity out.”
To help achieve those goals, Colgate-Palmolive is testing a new SAP product, its Supply Chain Optimization & Planning Engine, essentially an advanced-planning-and-scheduling module for the supply chain. The company already has close electronic ties with its raw-materials suppliers. “We give our suppliers our inventory and production levels, and they automatically replenish,” he says. “We also give them access to our SAP data via the Internet.”
Speaking of access to business data, five years ago Colgate-Palmolive’s own production-planning staff had only a partial view of its vast production pipeline. “They could see about 70% of the puzzle and had to estimate the other 30%,” says Toben. Today, he notes, they can see the whole of the company’s orders, production, and inventories for planning purposes.