executive vision kagermann’s law kagerma · a company in motion tends to stay in motion. and if...

[ Executive Vision ] Kagermann’s Law

6 D E L L I N S I G H T M A R C H 2 0 0 4

A company in motion tends to stay in motion.

And if that company is an SAP enterprise

customer, CEO Henning Kagermann is about

to prove his theory that it also can accelerate

while lowering costs

By Tara SwordsAll photos by Wolfram Scheible, © SAP AG.

Kagerma

M A R C H 2 0 0 4 D E L L I N S I G H T 7

Kagermann’s Law [ Executive Vision ]

InSAP® offices around the world, there’s a saying that echoes

in the consciousness of the people who roam the halls.

“SAP: The largest technology company you’ve never heard of.”

Well, that depends on who you ask.

The charming underdog mentality admits that the SAP name

probably is not bandied about as often as those of Microsoft, Intel,

or IBM—all heavy investors in consumer advertising that has

helped make them household names. But that’s not SAP’s audience.

SAP’s audience is anyone remotely familiar with enterprise soft-

ware, and you can bet they all have heard of SAP. Ask CIOs or other

IT decision makers at large companies, and there’s a good chance

that they not only recognize SAP, but also trust SAP’s software to

power a good portion of their enterprise business systems.

In nearly every major airport in the world, endorsements on the

walls bear out SAP’s influence in the business world: Porsche,

Reebok, Procter & Gamble, Samsung, and Lufthansa all proclaim

that “the best-run businesses run SAP” and count themselves

among those businesses, along with Raytheon, Airbus, Yamaha,

and many more.

Indeed, the Walldorf, Germany–based company is a giant, with a

current global market share of nearly 18 percent and 59 percent of

its peer market. SAP boasts more than 21,600 customers in more

than 120 countries, and works with thousands of partners. It

employs more than 29,000 people on six continents and recently

announced that it is ready to grow software sales by 10 percent,

given the promising industry outlook for 2004.

A new class of CEO

At the head of SAP AG’s operations is Henning Kagermann, chairman

of the executive board and CEO. He began his career as a physics

professor before becoming a professional business leader, but it took

no time for Kagermann to establish a reputation as a shrewd CEO. He

is known for tempering his quick genius with mindfulness—he

thinks carefully before speaking carefully—and his natural, easy

intelligence garners him tremendous respect from his staff. They

know that Kagermann’s quiet demeanor is somewhat misrepresenta-

tive of the strength of his convictions and ideas.

“Enterprises today need lower total cost of ownership without

sacrificing quality, and that’s why service has become such a

critical component of enterprise offerings,” he says thought-

fully. “That’s why we can’t ship only products to our customers;

our goal is to make them feel like service comes in the package,

too. Service is intangible, but it’s a very

important component of every product we

ship.”

Despite the somewhat upbeat predictions

for IT spending this year, Kagermann believes

the business world cannot afford to let its

obsession with lowering total cost of owner-

ship (TCO) fade away. Kagermann professes

that an interconnected web of globalization

has created a permanent air of uncertainty,

because what happens in one part of the

world affects nearly every other part. The

down economy might have pushed busi-

nesses to be more cost-conscious, but the

mutual reliance of economies that helped to

create the downfall is here to stay.

nn’sLaw


For that reason, Kagermann has spent

much time advising leaders not to wait out

the situation, but get used to it. Adjust atti-

tudes and adapt infrastructures. Many who

heard his tough-love advice bemoaned it

as a task easier said than done. For those

people, SAP has spent the last three years

working to set in motion an IT revolution

that will make it easier for enterprises to

accomplish what they’ve aimed at all along:

striking the elusive balance between low

TCO and high quality.

First, a dissertation on history

Before laying down Kagermann’s vision

of the future and how it will affect enter-

prises, it helps to understand his interpre-

tation of the past.

Back in the days when large corpora-

tions relied on a giant mainframe running a

few applications, integration wasn’t much

of a question because the applications were

integrated on one mammoth machine. It

was about the best organizations could

accomplish at the time. But the globaliza-

tion of individual corporations necessitated

the proliferation of IT—the New York office

needed servers and its own applications,

as did the offices in London, Los Angeles,

and Hong Kong. This need set off the birth

of the distributed enterprise and all of the

computing complications it entailed.

Around this time, SAP released its

now-omnipresent enterprise resource

planning (ERP) solution, SAP R/3®, and

suddenly the geographically distributed

enterprise could be somewhat integrated

at the same time.

But the dot-com boom brought an

explosion of business software innovation,

and integration became a much different

proposition altogether. Consider that most

Fortune 1000 organizations today run

anywhere from 500 to 1,000 applications,

and the reason that CIOs consistently

name business integration as a top initia-

tive becomes abundantly obvious.

The problem SAP recognizes is that

as soon as enterprises accomplish integra-

tion—perhaps through point-to-point or

enterprise application integration (EAI)—

some system somewhere in the company

will be ripe for an upgrade. Indeed, if the

company is running 500 to 1,000 applica-

tions, it’s a safe bet that the grueling

process of upgrading will never end.

And as for application consolidation?

Millions of dollars deep into the purchase

costs of these applications, enterprises are

tired of hearing that application consolida-

tion is the answer. They find a like mind

in Kagermann.

“Repeated consolidation is the act

of cleaning up a mess,” he says. “In the

future, our goal is to help customers avoid

creating the need for application consoli-

dation in the first place.”

You say you want a revolution?

Integration will always rank at the top

of surveys about CIO concerns until it is

8 D E L L I N S I G H T M A R C H 2 0 0 4

accomplished in a different way. And

soon, it will be.

The software industry is set to undergo

a radical shift in the way that applications

are created for and consumed by busi-

nesses: the move to a services-oriented

architecture (SOA). The advent of Web

services standards has paved the way for

SOA, which is, put simply, a client/server

approach to designing software as a service.

Yvonne Genovese, vice president and

research lead at analyst firm Gartner, Inc.,

says the way we use software today—

accessing a full application running on an

in-house server—will change as the

concept of SOA becomes more of a reality.

“In the hope of end-to-end data and

process integration, companies often

connect customers, suppliers, and remote

employees to their networks, but all of

this access bogs down systems and creates

new processes to integrate the old ones,”

Genovese says. “To solve performance

problems associated with so much data

exchange is nearly impossible because it

means re-creating software. Creating these

new business processes also requires new

software. But when you think about it, we

need to communicate some really practical

bits of information with customers, suppli-

ers, and employees—and just those bits of

information. SOA makes the exchange of

that information a Web services transac-

tion that can be wrapped with a business

process. We will exchange only what we

need to exchange, and it will happen in

real time. A services-oriented architecture

is necessary for this example to become a

pervasive reality.”

SAP builds on the trend

SAP’s vision for the services-oriented

future is built around something it calls

the Enterprise Services Architecture—a

customizable blueprint for enterprise IT.

It can extend Web services to enterprise

services, using the syntax and standards

of Web services to improve scalability,

security, and manageability. Web services

can make a company better able to quickly

modify the many components of its archi-

tecture to match changes in business

processes—without having to change the

entire architecture itself.

At the heart of SAP’s Enterprise

Services Architecture is the SAP

NetWeaver™ integration platform. SAP

NetWeaver embraces Internet standards

such as HTTP, XML, and Web services.

The openness of the platform acknowl-

edges the best-of-breed approach to appli-

cations taken by many enterprises, and

ensures openness and interoperability

with other solutions such as Microsoft®

.NET and J2EE™ environments such as

IBM® WebSphere® platforms.

“As a result of this openness, businesses

can create infrastructures that are tailored

to meet their unique needs,” Kagermann

says. “And the ability to leverage existing

applications empowers organizations to

capitalize on the low TCO opportunity

that a standards-based platform brings.”

For years, integration has been

concerned mostly with data. But if you

receive a bunch of numbers without

context, all you have are numbers. To turn

data into knowledge, an enterprise needs

to view it in context with data that is

stored in other core systems. What about

the people and processes that drive busi-

ness every day? To date, integration tech-

nology has largely ignored those critical

elements. SAP NetWeaver integrates all

three—data, people, and processes—to

n Aerospace & Defensen Automotive n Banking n Chemicals n Consumer Products n Defense & Securityn Engineering, Construction, &

Operations n Financial Service Providersn Healthcaren Higher Education & Research n High Tech n Industrial Machinery &

Components n Insurancen Media n Mill Productsn Mining n Oil & Gas n Pharmaceuticalsn Professional Servicesn Public Sector n Retail n Service Providers (Hospitality,

Logistics, Postal, Railway, andTechnical Service Providers)

n Telecommunicationsn Utilities

M A R C H 2 0 0 4 D E L L I N S I G H T 9

SAP

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“ …our goal is to helpcustomers avoid creating the need forapplication consolidationin the first place”



1 0 D E L L I N S I G H T M A R C H 2 0 0 4

bring enterprises much closer to the ulti-

mate goal of operating in real time and

supporting the constantly changing needs

of customers.

“For example, NetWeaver enables

users on a portal to develop a process

or workflow that tells them the natural

progression of the tasks assigned to their

jobs,” Genovese says. “This kind of

people-and-process integration is the

biggest pain point for enterprises, and

that’s why SAP’s vision is compelling.”

In the end, you need end-to-end

Another reason the vision is so compelling:

Once you can integrate data, people, and

processes, you can achieve something that

industry pundits refer to as business

process fusion.

Business process fusion means linking

all elements of existing processes into a

single master process. For example,

consider all of the individual processes

that take place from the time a customer

places an order to the time you ship it

out. Your sales force automation (SFA)

system handles order entry. SFA sends

transactions to your ERP system, which

then communicates with your supply

chain management (SCM) system. After

SCM determines the items you need from

your suppliers to fulfill the order, the

data goes back to your ERP system to be

tracked throughout the manufacturing

process. Once manufacturing is complete,

the data goes to your warehouse manage-

ment system. When the customer is ready

for the product, the order goes into your

transportation management system. It’s a

complex assortment of individual processes

that add up to one master process.

Using SAP NetWeaver, customers can

create those master processes. Key to the

effort are SAP xApps™, which are pack-

aged composite applications that combine

existing heterogeneous systems into

specialized end-to-end processes. SAP

xApps marks a separation between best

practices and what SAP calls “next prac-

tices,” giving customers the choice to

stick with trusted, proven applications or

test the waters with newer, more innova-

tive xApps. For example, SAP xApp

Mergers and Acquisitions walks acquiring

enterprises through the myriad processes

that can lead to the profitable success of a

merger or acquisition. Sure, a corporation

can accomplish successful mergers with-

out xApps, but a corporation that can

follow a master process instead of many

disconnected processes might stand a

greater chance of success.

“SAP is a safe haven for our custom-

ers, but we also are a trusted innovator,”

Kagermann says. “We provide solutions

for both types of customers: those who

want solutions proven by the test of time

and those who want the latest technology

as soon as it’s available.”

SAP NetWeaver and the SAP xApps

built on top of it are what give SAP “the

most-complete business-process fusion

vision among the major business applica-

tion vendors,” according to Gartner.1 But

Gartner and SAP both caution that the

radical shift toward a services-oriented

architecture and the business process

fusion it enables will not happen

overnight. It will be a gradual change

taking at least a few years for enterprises

to adopt on a large scale. And because

SAP NetWeaver is an open technology

platform, enterprises have plenty of time.

“The vision of SAP is to create these

new architectures without ever forcing

clients to move to a whole new system,”

Genovese explains. “Most customers have

spent a lot of money on software and say,

‘If I have to rip out my entire infrastruc-

ture and replace it with this new stuff,

forget it—I don’t have the money to do

that.’ SAP’s vision is for companies to

accomplish the change in a slow, evolu-

tionary manner. They can gradually

upgrade applications—such as SAP R/3—

to a services-oriented architecture and use

Web services only where they need to.

SOA is great because it can be changed

and built upon fairly easily once it’s estab-

lished. But users must understand that this

1 Gartner, Inc. SAP Has a Complete Vision for Business Process Fusion by Yvonne Genovese. October 9, 2003.

“We provide solutions

for both types of

customers: those

who want solutions

proven by the test

of time and those

who want the latest

technology as soon

as it’s available”

requires an upgrade to their current appli-

cation environment, and change is not that

easy with so many applications to move.”

That inherent flexibility is the most

attractive benefit to Bruce Decock, CIO

of LSI Logic, a semiconductor supplier

and Dell/SAP customer. LSI uses SAP

NetWeaver components to run an engi-

neering “cockpit” where project managers

access and manage deadlines, milestones,

activities, project costs, and design and

material attributes. Decock says that an

SAP xApp such as xRPM (resource and

program management) can link data,

people, and processes to enable smarter

decision making.

“We put so much effort into integration

because I know we can’t make good deci-

sions by basing them on data that is not

in context,” Decock says. “If a vendor like

SAP can accomplish more of that integra-

tion out of the box, then it offers me very

compelling value because it’s less IT

resources that I have to put toward the

integration effort.”

Integrated partners, integrated solutions

The main purpose of SAP NetWeaver is to

help enterprise customers achieve lower

TCO—a mission that it furthers through its

choice of technology partnerships. In part-

nering with Dell, SAP has found a kindred

spirit. Years ago, they were two adolescent

companies that were

beginning to strike an

incredible chord with

business customers.

Over the years, they

have grown together

and combined their

missions to give

customers access to

high-quality IT solu-

tions with high-quality

service in a way that

supports business and

budget requirements.


“The fact that Dell receivedthe SAP Pinnacle Award for

Excellence in CustomerSatisfaction and Support

shows me that the combination of SAP and

Dell is a good solution inthe eyes of our customers”

1 2 D E L L I N S I G H T M A R C H 2 0 0 4

M A R C H 2 0 0 4 D E L L I N S I G H T 1 3

Today, SAP leverages Dell’s business

model of build-to-order delivery to help

customers accelerate and simplify the

deployment of SAP solutions. In Dell

Centers of Excellence for SAP in Germany,

Texas, and Japan, SAP solutions are config-

ured, tested, and validated on Dell server

and storage hardware platforms so that

customers ultimately benefit from easier

deployments—and the peace of mind that

their combination of hardware and soft-

ware has run the gamut of testing.

“SAP’s vision in creating the SAP busi-

ness platform is to empower customers,

partners, and employees to collaborate

successfully anytime, anywhere,” says

Karl-Heinz Hess, Extended Management

Board, SAP AG. “We value Dell as a

Global Technology Partner because of its

ongoing commitment to jointly develop

solutions with SAP and take them quickly

and efficiently to market. This offers our

customers compelling value propositions

that turn vision into reality.”

Part of the compelling value that joint

Dell and SAP customers gain is the support

behind the solutions. In fact, in 2002, Dell

was a recipient of the prestigious SAP

Pinnacle Award for Excellence in Customer

Satisfaction and Support based on feed-

back from SAP’s customer base.

“That award is our highest honor for

quality,” Kagermann says. “The fact that

Dell received it shows

me that the combina-

tion of SAP and Dell is

a good solution in the

eyes of our customers. It also tells me

that we are delivering on our promise of

driving down total cost of ownership.”

Such is the case at LSI Logic. The

company recently moved portions of its

SAP strategic enterprise management

(SEM) system to four-processor Dell™

PowerEdge™ servers running the Red Hat®

Linux® operating system. At the same

time, LSI called in SAP professional

services to help write a change in the

SEM application that would load balance

work across the four processors in the

Dell servers. Previously, a weekly finan-

cial planning process required two days

and a lot of baby-sitting to monitor for

errors that might necessitate a restart of

the process. Today, the combination of

Dell servers and the load-balanced SAP

application has cut the process to just one

hour, freeing up IT resources and moving

the company closer to its goal of operating

in real time.

As SAP NetWeaver adoption increases

and the industry continues to undergo

the Web services revolution, Kagermann

believes more enterprise customers like

LSI soon will tout their own benefits of

lower TCO and increased business agility

solutions. In a world where we’ve been

taught that every action has an equal and

opposite reaction, the idea that a company

can cut IT costs without risking quality

seems to defy the laws of physics. But

SAP will be satisfied only if its customers

achieve that seemingly impossible balance.

And that is not just Kagermann’s wish—

it’s Kagermann’s Law.

SAP

does

RFI

D Radio frequency identification (RFID) technology is

the latest wave of hot technology to wash over the

IT world. Although RFID is not in widespread use today,

IDC predicts that spending on RFID systems in the retail

industry will surpass US$1 billion by 2007.

SAP began research into RFID more than four years

ago and launched its first pilot in 2002. One SAP retail

customer, the METRO Group, incorporated SAP RFID

solutions in a new store and determined that RFID

could dramatically improve efficiency in the logistics

execution and replenishment processes.

The SAP RFID solution is built on SAP Web Applica-

tion Server, part of the SAP NetWeaver technology plat-

form. The packaged solution—developed to allow

management and communication of RFID data and

utilization of business content to automate RFID-

enabled business processes—can be integrated into

existing IT environments through Auto-ID connectors

for SAP R/3, version 4.6c or higher, and mySAP™ ERP.

SAP and its consulting and technology partners will help

customers build individually tailored RFID solutions that

address business-case building, integrating RFID hard-

ware infrastructure, creating solution blueprints, and

implementing projects.


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