Database Reference
In-Depth Information
alliances with major global consulting companies such as IBM, Accenture, and Cap Gemini to
install its R/1 system in its growing base of global customers.
To some degree, its decision to focus on software development and outsource at least 80% of
installation was a consequence of its German founders'
engineering
mindset. Founded by com-
puter program engineers, SAP's culture was built on values and norms that emphasized technical
innovation, and the development of leading-edge ERP software was the key success factor in the
industry. SAP poured most of its money into research and development (R&D) to fund projects
that would add to its platform's capabilities; consequently, it had much less desire and money to
spend on consulting and building consulting expertise. Essentially, SAP was a product-focused
company and believed R&D would produce the technical advances that would be the source of its
competitive advantage and allow it to charge its customers a premium price for its ERP platform.
By 1988, SAP was spending more than 27% of gross sales on R&D.
5.1.2 SAP R
/
2
In 1981, SAP introduced its second-generation ERP software, R/2. Not only did it contain many
more value chain/business process software modules, but it also linked its ERP software to the
databases and communication systems used on mainframe computers, thus permitting greater
connectivity and ease of use of ERP throughout a company. The R/1 platform had been largely
a cross organizational accounting/financial software module; the new software modules could
handle procurement, product development, and inventory and order tracking. Of course, these
additional components had to be compatible with each other so that they could be seamlessly
integrated together at a customer's operations on-site. SAP's system was made compatible with
Oracle's database management system (DBMS) software; this was to have repercussions later,
when Oracle began to develop its own ERP software.
As part of its push to make its R/2 software the industry standard, SAP had also been in the
process of customizing its basic ERP platform to accommodate the needs of companies in differ-
ent kinds of industries. The way value chain activities and business processes are performed differs
from industry to industry because of differences in the manufacturing processes and other factors.
ERP software solutions must be customized by industry to perform most effectively. Its push to
become the ERP leader across industries, across all large global companies, and across all value
chain business processes required a huge R&D investment. In 1988, the company went public on
the Frankfurt stock exchange to raise the necessary cash.
By 1990, with its well-received multilingual software, SAP had emerged as one of the leading
providers of business application software, and its market capitalization was soaring. SAP began
to dominate ERP software sales in high tech and electronics, engineering and construction, con-
sumer products, and chemical and retail industries. Its product was increasingly being recognized
as superior to other ERP softwares being developed by companies such as PeopleSoft, JD Edwards,
and Oracle. One reason for SAP's increasing competitive advantage was that it could offer a broad,
standardized, state-of-the-art solution to many companies' business process problems, one that
spanned a wide variety of value chain activities spread around the globe. By contrast, its competi-
tors, like PeopleSoft, offered more focused solutions aimed at one business process, such as human
resource management.
ERP installation is a long and complicated process. A company cannot simply adapt its
information systems to it SAP's software; it must use consultants to rework the way it performs
its value chain activities so that its business processes, and the information systems that measure
