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In-Depth Information
these business processes, became compatible with SAP's software. SAP's ERP system provides a
company with the information needed to achieve best industry practices across its operations.
The more a particular company wishes to customize the SAP platform to its particular busi-
ness processes, the more difficult and expensive the implementation process and the harder it
becomes to realize the potential gains from cost savings and value added to the product.
SAP's outsourcing consulting strategy allowed it to penetrate global markets quickly and elimi-
nated the huge capital investment needed to provide this service on a global basis. For consulting
companies, however, the installation of SAP's software became a major money spinner, and SAP
did not enjoy as much of the huge revenue streams associated with providing computer services,
such as the design, installation, and maintenance of an ERP platform on an ongoing basis. It did
earn some revenue by training consultants in the intricacies of installing and maintaining SAP's
ERP system.
5.1.3 SAP R
/
3
In 1991, SAP had presented its R/3 or third-generation solution for the first time at the CeBIT
in Hannover and was released to the general market in 1992. The product met with an over-
whelming approval due to its client/server concept, uniform appearance of graphical interfaces,
consistent use of relational databases, and the ability to run on computers from different provid-
ers. Essentially, expanding on its previous solutions, R/3 offered seamless, real-time integration
for over 80% of a company's business processes. It had also embedded in the platform hundreds
and then thousands of industry best-practice solutions, or templates, that customers could use to
improve their operations and processes. The R/3 system was initially composed of seven differ-
ent modules corresponding to the most common business processes. Those modules are produc-
tion planning, materials management, financial accounting, asset management, human resources
management, project systems, and sales and distribution.
R/3 was designed to meet the diverse demands of its previous global clients. It could operate in
multiple languages and convert exchange rates, and so on, on a real-time basis. SAP, recognizing
the huge potential revenues to be earned from smaller business customers, ensured that R/3 could
now also be configured for smaller customers and be customized to suit the needs of a broader
range of industries. Furthermore, R/3 was designed to be
open architectured
, meaning that it could
operate with whatever kind of computer hardware or software (the legacy system) that a particular
company was presently using. Finally, in response to customer concerns that SAP's standardized
system meant huge implementation problems in changing their business processes to match SAP's
standardized solution, SAP introduced customization opportunity into its software. However,
the costs of doing this were extremely high and became a huge generator of fees for consulting
companies.
SAP used a variable-fee licensing system for its R/3 system depending upon
◾
The cost to the customer, which was based on the number of users within a company
◾
The number of different R/3 modules that were installed
◾
The degree to which users utilized these modules in the business planning process
SAP's R/3 far outperformed its competitors' products in a technical sense and once again allowed
it to charge a premium price for its new software. It was seeking to establish R/3 as the new ERP
market standard and lock in customers before competitors could offer viable alternatives. This
strategy was vital to its future success because, given the way an ERP system changes the nature
