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How SAP's Business Model and Strategies Made it the Global B

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ruby Yi

on 4 September 2013

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Transcript of How SAP's Business Model and Strategies Made it the Global B

Group 1. GONG Dae-sun, SHIM Jae-heon, LEE Seung-ji, YI Ruby
How SAP's Business Model and Strategies Made it the Global Business Software Leader
SAP
the world leader in enterprise software and software-related services
1972
1973
1981
1992
Slump
Foundation
R/1
Development of Middleware
R/3
Appearance of Internet
VS
1995
1996
R/3 Release 3.1
Internet-compatible
1997
New R/3
1998
STRATEGY
RESULT
R/2
R/2
R/1

+
link its ERP s/w to the existing
or legacy databases
Middleware
Strategy
Pros
Cons
Reasons
Realization
Effects
Problems & Solution
Decentralization
Premium Strategy
HRM
SAP
4th Largest S/W company

Internet
Broadband technology

248,500 customers in 188 countries
65,500 employees
A 41-year history
Annual revenue (IFRS) of € 16,22 billion
5 Computer analysts
from IBM
R/1: Initial ERP system
Recognize, monitor, measure, and evaluate all the transactions involved in business process such as product planning, the purchasing of inputs from suppliers, the manufacturing process, inventory and order processing, and customer service.
Target: Large multinational companies
Focus: Development of S/W
Internal consultants
(hard to install, complicated customizing)
The world's most well-known company
Change previous strategy for customer base
R&D investment
Outsource external consultants
Penetrated global markets quickly
Eliminated the huge capital investment
Didn't develop its own database management S/W (-->Oracle)
Oracle began to rapidly develop its own ERP during 2000s
Consulting profit > Product sales
Depend on consulting firms
No immediate feedback X
Lost the chance to have standard in consulting industry
1. Engineering mindset
- emphasized technical innovation not consulting services
Product-based > customer-based
30% on R&D
Technical advances

2. Top mangers in SAP were not experienced business manager

Business processes are performed differently from industry to industry
Tried to accommodate the needs of companies in different kinds of industries
R2
(offer seamless, real-time integration)

+
7 different modules
Met the diverse demands of global clients

Suggested broad, standardized and state-of-the-art solution (extensive value chain)

Germany : R&D and S/W development
Other major countries : wholly-owned subsidiaries
(1995 : 18 ---> today : over 50)
Believed that competitors would take at least 2 years to catch up
-->
Charge a premium price
Made its customers to switch to its new product
-->
Establish R/3 as the new ERP market standard
-->
Lock in customers
before competitors' offer
High switching costs
Develop job description
Rewarding system
Increase loyalty of their technicians
Career path
-->
Motivate employees
and keep them
loyal to the company
Competitors catch-up
1. Consultant Problems
Trained consultants leave company
-->
Poorly served customers' needs
Unnecessarily long time for installation

2. Paradoxical Policy
Company's mission-> to give linked functions and divisions
Company's policy -> Decentralization
(pricing, offering, dealing and rewarding process)
"Organized Chaos"

Flat hierarchy
Norm of culture
:Hard work, Team work, Openness, speed
Centralization
Standardize


Positive Changes
Input -
Relationship
between company itself and suppliers

Output -
Customer Interface
Alliance
with MS, Netscape, SUN

-->Internet compatible R/3
Alternatives
1.
Lock customer
and charge premium price

2.
More open standard
and alliance with companies

3.
Illusion of control

4. Make ERP software
more customized
New R/3(with SCM, CRM)

1. SCM- "back-end"
forecast future needs
plan and manage company's operation
2. CRM - "front-end"



Follow
maps
(solution map, business map, etc)
-->make R/3 dynamic, responsible to changes
Recognize importance of U.S market
1. encourage internal "
organic growth
"
2. allow it to develop a U.S. top management team


Part 2. Recent issues
The
previous
action/strategies
When technical change occurred

The
recent
action/strategies
When technical change occurred

vs
Author insist

Engineering mindse
t triggers problems”

Technical change

Oracle
SAP
Niche market
e.g. Ariba
New R/3 solutions for ERP
Internet enabled SCM and CRM solutions

Believe its capabilities

Stick to the original strategy
; lock customer as providing broad, web-based system

External Environment

move to new strategies
; internal ERP system -> external network platform
ERP throughout a company at all levels and all subunits
H/W
S/W
Company A
Company B
Implemental problem
Specialized S/W
Too high Price
Variable-fee licensing system
Problem
<->
Competitors: aimed at one business process
(Multiple languages, Converting exchange rates, Additional functions)
Goal
Cause of Decentralization
Effort
Main strength = Human resources
Technical change
Oracle
SAP
Established market
e.g. Amazon
External environment
Provide SAP HANA Cloud
in-memory database platform

Technical innovation is essential.

Take over ‘HANA’ in 2005
6years
R&D
, launched in 2011

- Consider microenvironment
- Look for sector(HANA- memory chip)
- Invest R&D steadily

October, 2012

SUCCESSFUL :D


1. Engineering mindset

2. Our evaluation of strategies

Part 3. Discussion

; Form culture that expect the concentration on R&D

Part 3-1. Engineering mindset
-> outsourcing, decentralization

still the world leading software company

The highest
R&D spending
ratio
Engineering mindset values on
technical
innovation
- quickly got into the global market
- received high premium from customers
- steady development leading success
e.g. new R/3 solutions, SAP HANA Cloud etc.
The result of
Engineering mindset
Part 3-2. Our evaluation of strategies
VISION
-Deliver high quality solutions.

Mission
-Research and develop new methods and standards.

SUMMARY & EVALUATION of SAP’s STRATEGIES

Production planning
Materials management
Financial accounting
Asset management
Human resources management
Project systems
Sales & distribution
Customers buy
not full package
of SAP
but software on a "best of breed"
-->
No longer locks customers
In Niche Market,
New companies
provide attractive alternatives to customers seeking specific aspects of an ERP system
Oracle had already had core database management S/W

-->
take market share away from SAP

http://www.sap.com/corporate-en/news.epx?PressID=19748
http://blogs.wsj.com/digits/2012/10/01/oracle-cloud-compute-service
http://setandbma.wordpress.com/2011/07/22/1240/
Full transcript