April 2006


Back to my roots:

I'm really excited to be going back to South Africa tonight, for a mix of holiday and and a little work.

The holiday will involve catching up with my brother and his family, seeing my folks, old friends, watching some cricket, riding a mountain bike recklessly,and introducing my kids to the joys of a very long deserted beach. Plettenberg Bay here we come.

On the work front, I'm speaking at the HR special interest group meeting in Johanesburg on the 11th of May, and meeting a couple of South African customers.(if there are any SA customers or partners out there reading this, come along, or drop me or Adam Sentonaris at SAP Africa a note and we can set up a meeting)

I'm always amazed that the innovation and energy levels when I go back. Down there at the tip of Africa, lurk some of the best SAP implementations in the world. For instance, Employee Self Service adoption in the SAP HR customer base in South Africa is higher than that in the UK! Sasol, ABSA, Standard Bank, Telkom and others run SAP shared service setups that impress me tremedously.  South African customers are often the first to ramp up new technologies, SASOL is speaking about Mendocino at sapphire for instance. I'm looking forward to meeting more customers and learning what they are up to.

Instead of SA customers coming to Europe and the US to learn about best practice, I'd like reverse the trend. The next time a conference organiser is looking for best in class SAP implementations, take my advice and head south!

South African HR practice generally can teach the world a lot, I'll post more about this soon.

If you are looking to offshore HR IT on SAP, I would seriously consider South Africa. Strong technical skills at a good price, good english language skills, excellent SAP ecosystem, HR people who understand HR and passionate about getting the best out of people. I'm suprised one of the BPO providers hasnt done this.

I also need to learn more about what is going on with other South African IT innovations. For one, Umbuntu looks very interesting. SAP Research is also doing some cool stuff down there.

My blog will be a little quiet…

On sunday night I went to dinner at the Mango tree in London. Nice thai spot. Tough job I have. The guests at dinner were really fascinating though. Hans-Dieter Scheuermann, my boss, has been at SAP since the 1970's, Adrian Furnham, the most published psychologist in Europe and Jose Estrada, the man running Shell's SOX compliance strategy.

 I've known Adrian for sometime, and we are both from Pietermaritzburg, a small town in South Africa, (made briefly infamous in a Tom Sharpe novel, Riotous Assembly). Adrian produces a book a day and an academic article in about the time it takes you to read this post. Google him and you will be amazed by the volume and quality of his output. I've arranged for him to speak at our next CFO roundtable meeting, and Dieter wanted to meet him to explain the event and the sort of talk we want. He is an excellent speaker.You can hear him talking about a book on amazon.

 Jose has been at shell for 33 years. Jose has been all over the world with Shell, including a stint as CFO in South America.  I'll write more about his compliance plans shortly.  We discussed alot about management, compliance, ethics, wine and what it is like to live in different countries.

What was really interesting though, was to hear them talk about blogs, social networks, search and podcasting. Those of us in our 30's and 20's sometimes think we are the internet generation, but there are lots of older folks out there getting just as much out of it as we do.

 Dieter has a really deep understanding of enterprise applications. He used to lead finance development, and was a key lead  for R/3 He now runs a network of SAP customer CFOS and finance types, helping them get more out of their SAP investment.

The compliance and risk workshop was hosted by Jose from Shell with 9 other senior compliance and risk types. I moderated it, and presented SAP's  solution strategy. I'll post more about compliance and risk workshop later, still getting to grips with the stuff I learnt there.  

There is no better content than experience, and there was heaps of it at dinner on sunday.

On Friday after working in London, I met up with James Governor of Redmonk fame at his local wine spot, Bedales. 

The theory was to meet for a glass or two of wine, but the scope of the project soon expanded. Clever concept Bedales, a mix of wine shop and wine bar, great selection and very well run by the lovely Emily. We did that odd english thing of sitting outside because the sun was vaguely shining. The wine helped us keep warm.  Next time I'm in the city, I'll return.

We spent some of the time talking about compliance, web 2.0, SAP, IBM, Oracle and so on, but we spent more time talking about kids, former lives, and the South African software mafia. James has an excellent grasp of the enterprise software space.  SAP should be talking more with Redmonk.

I met James through his blog, and I read his research because it was free and easy to obtain, unlike the traditional analyst stuff.  I will continue to read more because it is good. The Redmonk paper on compliance architecture  remains the best piece I've read on compliance and software. Hopefully after our chat he can update it with the SAP stuff! Building a sustainable architeture for compliance is a key SAP play at the moment, the Virsa acquistion is part of this plan. I think this will be a big part of the sapphire story, so expect to hear a lot more details from Neetin and the compliance team.

I'll write more about compliance after my workshop this week, then I'm off to South Africa to see the family.

Hello Vinnie

I'm going to let the software R&D theme rest in peace.

You  mentioned charity  so I will pick on that instead. I was recently working with the UK team on a global talent and contract staffing application-platform proposition and my colleague Chris Taplin mentioned he is running the london marathon this weekend. He is raising money for A bone marrow transplant charity.  Instead of that lunch you were going to buy me  check out his link and sponsor him as he runs 42 and a bit kms for a worthwhile cause !-)

Great to see charities using the web to reach more donors and reduce SGA (innovation again)

It is me again….dead horse flogging. I have been doing some more googling on innovation and R&D. I don't have a Vinnie vendetta, I just happen to think he is wrong on this one. Every industry could do better R&D and could improve the sales process, not just software.

I dont think innovation and R&D spend are coterminous. Vinnie noted that Kelloggs doesn't have an R&D figure on their P&L. This doesn't mean that Kelloggs doesn't innovate. (If you see the latest SAP annual report, it talks alot about Kelloggs thought leading supply chain management innovation)

Innovation happens all over the place, not just in the R&D department. All sorts of innovation happens in sales, marketing, consulting, HR, finance and support. This isn't tracked in the R&D numbers.

It would be great if we could reduce the SG&A, but at the risk of doing that broken record thing, lets look to Vinnies I wish the software guys were more like pharma argument again. the numbers are a little old but still relevant….

Cost structure. A recent Deutsche Banc Alex. Brown research report shows a breakdown of the disposition of the sales revenue earned by the eight largest research-based pharmaceutical manufacturers in 1998.17 According to these data, roughly 27 percent of these ompanies’ revenues in 1998 was absorbed by the manufacturing cost of goods sold, 35 percent by selling (marketing) and general administration (SGA), 13 percent by research and development (R&D), 7 percent by taxes, and 18 percent by reported after-tax accounting profits.18 The data are fully consistent with information assembled by research analysts at Banc of America Securities LLC

It seems from this that we are remarkably similar….We could do better, for sure, but I'm not sure that we are as bad as Vinnie makes us out to be.

Stretching Charles's eloquent Coasian economic discourse in another way, I think the software sales and marketing processes also play an important educational role. (dont laugh!!!!) Some software companies do a lot to educate customers in new technologies, processes and services that they may not have known about before. sometimes, agreed, this is overhyped beyond usefullness. We need to do more, not less marketing, but the marketing needs to more informative and less combatative.

Lets take "me" as an example though. I spend much of my time talking to customers about what other customers have done. They tell me that SAP helps them with information about HR and compliance trends that they don't get elsewhere. Next week we are bringing 6-7 global 100 company executives together for two days to discuss compliance and risk and how to manage them creates the potential for sharing and innovation. the common thread is that these business depend on SAP for their core business processes. I'm lucky enough to be moderating and faciliating the session.

I spent today listening to and talking with two executives from a megaglobal multinational FMCG. We discussed how to add more value-add transactional shared service model, and how to deliver better HR service for lower cost. I learnt a lot, but I hope they learnt something from me too. I'll connect them with a major electronics player and another FMCG firm who are little further down the road. I may have saved them 3 weeks of strategy consulting fees.

I report into the "S" bit of S&GA.

Kagermann rightly demands that we become a trusted advisor of our customers, and that is more important than reducing the size of the "s". To be a trusted advisor means you need to know real stuff, and keep learning, not just about technology, but about business, you need to connect people in the SAP world together to help customers do more, not just with the new stuff, but with what they have already. This costs time and money.

My job is fun, and in a small way, innovative. There are alot of people in sales and marketing at SAP that believe and practice similar things. Sure we need to get better….

With SAP you are buying much more than the code.

 

There is an interesting discussion on one of my regular feeds, roughtype ,at the moment about the superficial nature of reading blogs and RSS, and how it may be destroying or compromising a slower, contemplative thought process. I read it in a vague nodding my head kind of way, but then something happened yesterday that changed my mind.

gapingvoid has become my favourite site, I find the cartoons funny, and they normally bring a smile, or even make me laugh outloud. This is a good thing. This cartoon, though, made me pause and remember something really significant.  

Nearly 20 years ago. as a shy Politics and English Lit undergrad, my ability to recite this poem after a couple of beers enabled me to catch the eye of a girl who I had admired from afar, but I not had the nerve to try and talk to directly using prose.   William Blake, I owe you a big one. Charlotte and I have been married for 10 years and have three great kids. (they

currently holidaying back home in South Africa, while I earn the crust here in Germany)

What has this got to do with the roughtype post, well quite a lot really. Hugh's blog reminded me of that poem and of the joy that reading a good poem can bring. Probably a lot of people remembered it, and may even have read the poem again.

I quickly googled some of the old favourites, and I spent several hours last night with Keats, Yeats, Healy, Wordsworth, Dunn, Auden, Plath, Thomas and so on. I've taken the poetry books down from the bookshelf.

Most importantly though. Hugh's post  reminded me how much I love my wife. 

Vinnie has a go at software R&D in his post here. I felt compelled to respond, even if it means missing lunch in the Walldorf canteen. 

Having spent 13 years in presales, I for one, would love shorter sales cycles. 600 page RFPs that result in 3 vendors being scored at 91% 87% and 88% fit, and death by demo doesnt help anyone. I have been involved in some sales cycles that have taken over 5 years for a basic HR system. I sometimes liken selling enterprise software to selling a house to 40 people, all whom have to agree, but you never get the same 40 people through the house at the same time. 

I have argued before that organisations that "buy fast" tend to implement fast.  It takes two to tango. If the customer buying patterns change, you bet the software companies will change too. I think you may need to point your finger at those that dream up the RFP circus, rather than those that are compelled to perform in them.

Secondly, and more fudamentally.

 Vinnie if you dont like 10% R&D you need to beat up every industry, not just the software guys. While I was missing out on my schitzel I googled pharma R&D and came up with some interesting numbers. It is not the paragon imagine.

Looking at pharma R&D industry stats, I found out the following: (This is related to the German Pharma industry, but could be extrapolated relatively accurately globally)

 the first time since the introduction of the VFA Member Survey in 1997, the R&D expenditures of the researchbased pharmaceutical companies did, in fact, stagnate. In 2004, they increased by a mere 0.2 percent to EUR 3.9 billion compared to 2003. Since sales were down 3.8 percent, the share of R&D expenditures increased from 15 to 16 percent.

You can read more here. on the german association of research based pharma companies.

Similarily a look at the DTI report here shows that the  pharma industry (GSK, Pfizer, … has an R&D and CAPEX spend of 21% (adding capex to R&D inflates this considerably), and an operating profit of  71,4%.

I picked GSK as an example R&D is constant at 14.5% over the past two years.

Although a little old, I think these numbers offer a similar view for the whole pharma industry

1999 Data

All data points are percentages of sales unless specified otherwise

 Company  Cost of Goods  Marketing & Administrative  R&D
 Abbott   45.4%   21.7%    9.1% 
 American Home Products   27.3%   37.2%   12.8% 
 AMGEN   13.2%*   19.6%   24.6% 
 Biogen   17.9%*   18.4%   27.8% 
 Bristol-Myers Squibb   27.4%   34.6%    9.1% 
 Dupont   63.1%    9.6%    6.0% 
 Eli Lilly   21.0%   27.6%   17.8% 
 Genentech   18.0%*   33.0%   26.0% 
 Glaxo Wellcome   20.0%   35.2%   14.6% 
 Johnson & Johnson   30.7%   38.2%   9.5% 
 Merck   53.6%   15.9%    6.3% 
 Novartis   N.A   N.A   12.4% 
 Novartis (Pharmaceutical segment)   N.A   N.A   18.3% 
 Pharmacia   26.1%   38.6%   19.8% 
 Pfizer  15.6%   39.2%   17.1% 
 Roche   N.A   N.A   13.7% 
 Schering-Plough  19.6%   37.4%   13.0% 
 SmithKline Beecham   29.2%   38.2%   12.1% 
 Warner-Lambert   23.5%   46.1%    9.7% 

*Percentage of Product Sales

Source: Company SEC 10K Filings and Company Annual Reports

SAP spends 13% on R&D, and grew this by 19% this year.

You may also want to check on your charity. http://moneycentral.msn.com/content/Savinganddebt/consumeractionguide/P58021.asp

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