SAP chief charts road map

At the recent Gartner Symposium ITxpo in Cannes, Henning Kagermann, chief executive of enterprise resource planning (ERP) software giant SAP, outlined his company's product road map to delegates.

Later, in one of the few interviews he granted, Kagermann took time out of his schedule to explain in more detail SAP's plans, changes on the horizon and his thoughts on the consolidation in the industry.

What changes you are planning to make to your support and maintenance, and how will they benefit customers?

We don't leave the customer alone. They still get restricted support [for products whose support lifecycle has ended]. Now they can ask for normal support, so we would still do maintenance releases and ship patches.

We will be supporting eight releases next year and have tried to make maintenance more flexible. If a customer still wants to run software after official support then they can add another two years and pay an additional two per cent. Some might want longer support and it's up to individual negotiation, but we would ask [a premium] so that it gives us a payback.

What changes are you planning for licensing, which has been a contentious issue among some customers?

Customers want to be seen as individuals. So they may say: "We only use 10 per cent of a product, is it fair that we pay the complete price?" One way would be to have more industry-specific price lists, taking only those components an industry needs. We have 23 industries, so can offer some different packages, depending on how much the customer wants to use the software. It's less complex and more specialised. We will start next year.

Customers will never be happy about licensing. But it is getting more complex because we are bringing in more products. Licensing will stay around user pricing, because we believe it's fair.

What are the biggest technological challenges SAP is currently facing?

The transformation into a service-oriented architecture. This isn't a five-year challenge - more two years. We have innovation around automated IDs and how this improves business processes. But the key challenge is to redesign all our products based on NetWeaver.

And how is this best for your customers?

They like this because it gives them flexibility, lower cost of ownership and preserves a level of integration with SAP. Flexibility is important because it gives them more chance and ability to react faster to strategic challenges.

For total cost of ownership (TCO) we are 60 per cent operating costs, and much of that is labour. We work directly with partners to bring cost down because we can't do it alone. We have clients that are only using 50 to 60 per cent of their infrastructure. We're showing them that they can bring it up to 80 per cent, bringing down TCO significantly.

How are you giving your customers more flexibility?

We put in a lot of effort to make SAP a more market-oriented company. That means more listening, more global functions and a more flexible architecture. We know that for growth and innovation there will be no increase in IT budgets, so we must have the right message and attitude. In the past it was "we have a good product and it's good for you". Now it's more about dialogue and really trying to help and bring value to the client.

The PeopleSoft/Oracle merger spat continues to rumble. What is your opinion of this, its potential outcome and the effects it will have on your business?

It's not helping us in the short term, but I think it will be good for us long term. Whatever happens, it will strengthen us because it brings uncertainty to the market. We're stable and have good product offerings.

Do you think Oracle will buy PeopleSoft?

I feel the chances are now lower than 50 per cent. I think it's getting more and more difficult. If there's a business reason behind it, why not disclose this? For instance, they should say: "This is why it's good for shareholders, but we will not pay any price, it has to be good for shareholders." The only reason is to close the gap with SAP.

What new markets do you think you will attack next?

I feel comfortable, we have a broad scope. We are at the high end and go to the low end, so there's no need for us to attack another market. It's a huge market, it's enough for us and it keeps us focused. For instance, clients don't need to decide if they need customer relationship management [CRM] and how to integrate it. We know the companies, the industries and the competitive markets.

It makes no sense to talk about CRM or supply chain management. If a client needs to collect money it's about billing, if they have too high an inventory then it's a supply chain thing, if it's Sarbanes-Oxley then it's finance and management.

Explain the changes you are making to your software architecture.

SAP will ship new products in future on NetWeaver. All of mySAP will ship on it. In 2005, 70 to 80 per cent of products will have been redesigned to the new architecture. By 2006 we will be done.

We are splitting our core financials into eight to 10 components that give us flexibility. They will be shipped in parallel at first with some old components. That will let some clients run the old processes with no upgrade costs and to start running some of the new ones.

NetWeaver is considered by analysts such as Gartner to be very ambitious. You describe the integration platform as the foundation for software such as xApps and mySAP. What is your road map for it?

All components are on the market. Master Data Management was the last one, shipped a few months ago. All other components are mature. The challenge now is to bring all the components into one platform, which makes life easier for customers and brings down operating costs.

How will mySAP change over the next few years, and what will customers need to do to roll it out?

R/3 Enterprise is just another release of R/3. We are close to the end of R/3, so it might be the last. We cannot bring the next-generation ERP to market in the way we did between R/2 and R/3, where we saw a revolution and said rip it out and start again. We'll take the core components of R/3 and make them part of mySAP. We have an initiative next year to help customers do this. We need to do this because it's not just technology, it's business processes as well.