SAP

Since last year, SAP Support has been a major part of the news - first with SAP announcing Enterprise Support, the market’s reaction to a rise in support cost - from 17% to 22%, a critical reception from customers, the SAP response of rolling back the support price in DACH (Germany, Austria and Switzerland), the emergence of service partners who ‘supposedly’ offer AMC (Annual Maintenance Contract) equivalents to SAP customers, and more recently the erstwhile rumors in the market about Siemens planning to cancel their Annual Maintenance Contract with SAP and the trend which could begin if this had come true.

I will try to cover these issues in my next few blogs, but first we should understand the financial implications of Support services to SAP and the customer.

A few main points should be noted before we go into the details of the SAP Earnings Reports. Check out Table 1.

• There are two main headings in revenue- ‘Software & Software-related service revenue’ and ‘Professional Services and other revenue’; the latter ranging from 24% to 27% (in FY 2007, FY 2008 and 9M FY 2009).
• Under Software & Software-related service revenue (which has varied from 72% to 75% in the same time period) there are two main sources of revenue - Software revenue and Support revenue.
• Software revenue is self-explanatory - revenues resulting from sales of SAP licenses for products and solutions, including Solutions for Large Enterprises (Business Suite, Industry Solutions), Solutions for SME (SAP Business All-in-One, Business ByDesign, Business One), SAP BusinessObjects Portfolio, SAP NetWeaver Technology, Sustainability Solutions, etc.
• Software-related service revenue comprises revenues earned by support services provided by SAP Custom Development and SAP support units (Global Support, Customer Assurance at SAP BusinessObjects and likewise for SAP SME).
• Professional Service revenue consists of earnings through Consulting, Education and Managed Services. 

Table 1

Table 1 gives the details of the revenue breakdown over the last four financial years. There is a remarkable decrease in the software revenue for 9M 2009 and this can be attributed to a couple of reasons. First, the economic slowdown would have discouraged customers from spending on new licenses in the corresponding period and hence this low number. Second, license sales pick up in the last quarter of the year. In fact, a close look at quarterly and annual reports will prove that historically about 40% of the annual license sales take place in the 4th quarter.

On the other hand there is a steady increase in support revenue through the time period. This is even more noticeable in the graph (Picture 1) where the percentage of support revenue to total revenue spikes to nearly 52% from its average of 37% to 39% over the previous three years. This percentage may reduce once license sales pick up in the last quarter. But even then, in direct number terms if the 9M 2009 support revenue is extrapolated, SAP will easily make more than 5 Billion Euros from support in FY09.

The fact that support revenue accounts for approximately 40% of the total (and now over 50% for FY 2009) has a huge financial implication. This is an assured source of revenue for SAP – given that customers do not terminate their Annual Maintenance Contracts. It does not depend on cyclical downturns in the economy and continues to grow in spite of less license sales.

On the other hand for the customers this is a constant expenditure which not only has a sizeable impact on the bottom-line but also reduces the IT spend available on new projects. Hence, customers need to be assured that this spend returns the desired value and cannot be replaced by other service providers.

Picture 1

Next up – What does SAP mean by SAP Software-related services and what options does the customer have? 

Posted by Shiraz Mishra at 8:03 AM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

SAP is dealing with various challenges since HY2 2008. In the last few years, I have not seen a more difficult time for the company. The way I look at it, this can be the wake-up call the world’s largest ‘business software provider’ requires to maintain its leadership in the coming years.

In the part 1 of this blog (http://www.infosysblogs.com/sap/2009/09/why_need_profitability_analysi.html#more), we discussed few of the pain points that business are facing today. Moving ahead let’s see how would profitability analysis help solve them and how can such a solution be implemented.

Consider a scenario where your company creates profitability report for its products, product lines, customers, channels and geography; or any combination thereof. You as a sales manager sort the customers based on their profitability and know the most profitable and least profitable customers. You treat your most profitable customers best. You also analyze the unprofitable customers and devise plan either to make them profitable or divest them. You have information about the customer-product profitability and clearly know which products to focus for maximizing the company’s profit.

In a different scenario, you as a product manager can see the P&L for each of your products. Based on this information, you work with the sales manager for promoting your best product, right pricing them, cross-selling and rationalizing the product portfolio. Your operation manager can see cost of each product and the activities consumed by them. You brainstorm with him for identifying the non-value adding activities and target them for reduced cost and possibly for reduced cycle time.

As your company decides to embark on a strategic initiative (one of six sigma/BPR/TOC/JIT/lean management etc); you have a concrete baseline to measure the results. You measure the ROI based on hard numbers (profitability figures) along with the soft parameters (customer perception, employee satisfaction etc).

These are few ways in which profitability analysis can assist your company in better and informed decision making. Now we know why do we need the profitability analysis, the next big question is how to prepare the organization for such a change?

First and the most important requirement for profitability analysis is a robust Cost Information System (CIS).The CIS should not be just an extension of Financial Accounting system. It should be designed and developed specifically for costing information based on proven costing methodology preferably Activity Based costing (ABC).

Why ABC? How should the CIS be to support profitability analysis? Finally, how to move towards profitability analysis as a decision making tools? Keep on looking at this space for the next blog series.

Posted by Vivek Madhav at 6:26 AM | Permalink | Comments ( 0 ) | TrackBacks ( 0 )

First of all my apologies to friends who were following this blog, it took me a while to post the second part … there has been a lot of interest in EPM and I’ve been kept busy.

So, starting with where we left in the first part (http://www.infosysblogs.com/sap/2009/08/enterprise_performance_managem.html#more). There are a few broad areas that EPM covers at the strategic and operational levels – Strategy Management; Business Planning, Forecasting and Budgeting; Financial Consolidation; Profitability Management; Management Reporting & Analytics for your Business Functions (e.g. Supply Chain Performance Management).

Posted by Rakhi Makad at 8:24 AM | Permalink | Comments ( 1 ) | TrackBacks ( 0 )

If this is true, then AccAD is your “goto” solution. Positioned as a complimentary offering to SAP Netweaver, SAP’s Accelerated Application delivery (ACCAD), is a standalone application. It can be leveraged as an enabler for SAP's global central system strategy e.g., Central Portal as single central access point for end-users worldwide.

Access via AccAD is significantly fast than direct access over WAN. This is true for limited bandwidth and longer latencies.

Quite commonly due to bandwidth and latency issues users in remote offices encounter performance issues like quite length logging or navigating within portal. Accelerated application delivery is a software client that can overcome such issues and thus deliver applications at near LAN speed to global user groups. Its application aware compression and caching mechanisms can be more efficient than generic acceleration over WAN and application delivery technologies.

AccAD can provide benefits to all web based SAP applications such as - WebDynPro, BSP applications etc.,. AccAD can be more useful in many cases to your organization such as - SAP Portal as an entry point for all your web applications, KM applications, Learning solutions (LSO), WebDynPro solutions HR portal etc., AccAD focuses more on SAP applications than to generic  applications, however it can benefit from the already implemented generic accelerated application delivery.

AccAD technology is productive simple and effective with easy configurations with flexible platform options available – Linux and Windows for data center and remote offices and can run in simple hardware. One central location you could administer the delivery polices for all remote locations and data centre.

AccAD includes delivery policy - set of rules that define the availability of an application service in aremote office, including delivery optimization parameters. The delivery policy determines which application service is delivered to which remote office.

Deployment is quite simple, easy and fast and could be completed in hours. By deploying the below two AccAD engines:

• SFE - Server Front End  The AD engine instance that resides in the data center
• CFE - Client Front End  The AD engine instance that resides in the remote office

AccAD establishes a tunnel between SFE and CFE via TCP or TLS/SSL if security is required. With a small plug-in deployed in SAP NetWeaver Portal, at the data center you can access tools for configuring and managing the delivery policy. The plug-in also helps to view audit information such as alerts, events, and traffic history.

Improve user experience, let your Netweaver applications be delivered with speed!

I will be happy to answer any questions.

Posted by Senthil Muthuvelu at 3:08 PM | Permalink | Comments ( 1 ) | TrackBacks ( 0 )