April 2006 – Vendorprisey

ngiya ekhaya (or I’m going home)

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…

3 wise people and yours truly at dinner

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.

not marathon sales cycles but real marathons and charity.

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)

Vinnie the sequel…Charles in the supporting role.

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 more to life than RSS and ERP.

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, software and pharma

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

So you have a cool Composite app? How do you sell it?

Steve Ballmer from Microsoft recently commented on how complex the enterprise software sale is.

“The truth is that the way information technology decisions are made in a company is really complicated. You really have four points of view, and we have to work with all of them–end-users, central IT, line-of-business executives, and then the business leaders, who could be the head of sales, finance or operations.”

There is an excellent article here by Dale Vine of Freeefrom Dynamics (this is where I picked up the quote) on the complex nature of enterprise software sales, and Hamish has some thoughts too. SAP has developed a strong sales force over the years, and it plays a part in our success.

I think one of the major challenges that small software innovators face is in building a proper sales process, team, business development, partnerships and so on. This is not easy. A top sales guy can make a huge difference to the success of start up or niche firm, but often they can't attract the calibre of people that they need to manage the complex sale.

As most of my merry band of 3 readers know, SAP is putting a lot of effort into the ISV channel, and we will see lots of applications emerging over the next year, hopefully emulating the success that Virsa has had. (see Joshua Greenbaum's article)

A friend of mine has recently left SAP to set up a company, ISV-ecoNet,advising and supporting ISV selling into the SAP customer base. He ran the Netweaver sales team at SAP Germany, so he knows his stuff. He will be able to help companies align their sales and marketing strategies with SAP's, build help build the right contacts in SAP's sales team and in the vast German customer base, and close the deals. He aims to build a portfolio of hot niche products that complement SAP, and help the ISVs bring them to market and close deals. I think he is onto a winner. It will help SAP and it will help the ISVs.

As an example, he is working with a electronic signature company, Authentidate who have built a great solution that integrates into SAP. Electronic signature is particularly hot in Germany at the moment, due to some recent significant legislative changes, and the German cultural fixation with the "stempel".

ISV

SAP

Compliance, HR and my job.

I’m off to ride my new bicycle up some italian mountains this easter weekend, when many sensible folks are planning a last skitrip or looking for easter eggs. Contrary is my middle name. My wife has sensibly taken herself and the kids back “home” to South Africa to see the grandparents and the sun.

I had lunch with Amit Chatterjee earlier this week, he is one of the senior strategy guys at SAP. We talked about the Virsa acquisition, compliance issues and we generally fixed all that was wrong with SAP before we got to the coffee. Bright guy.
I’ve also been talking to the compliance product management guys both here and across the pond. The Virsa acquistion will really help accelerate compliance related developments, and I believe, reduce customer compliance costs significantly. What is also fascinating is that there is a lot of good compliance stuff buried in the ERP core, we need bring it to the surface and tell people about it. Some people complain that ERP code base is too big, but it does mean sometimes we discover cool stuff we had almost forgotten about. Code-wise the Virsa stuff fits well, cos it was developed from the start as an SAP add-in. There is a lot of work to do though. (makes me realise what a big job the Oracle folks have got on their hands)

When I get back I’m preparing for a compliance and risk workshop with some senior compliance and risk folks from some of Europe’s biggest companies. We will be looking at compliance management and risk management, exploring their relationship. We will also be looking at how you practically reduce the ongoing cost of compliance, and manage multi-country multi country compliance rollouts. I’ll be discussing the Virsa acquistion and how it fits into our solution plans, and one of the Virsa guys will be there with me. It should be a good session and I think I will learn lots from the folks there. The workshop should be really interactive and open, as we are keeping ppts to a minimum.

There is nothing like listening to people who have to run complex businesses, sometimes you just sit back and say “wow” you did that with our software? There is lots of innovation in big companies, you find it in the strangest places. It is amazing to see what people do with our solutions in real life. Big multi-billion euro businesses rely on our stuff to keep them in business. It makes you feel proud and humbled at the same time. (is that naff?)

The department I work for, the Business Solution Architects Group, is one of the most interesting groups at SAP. Everyone in the group joined SAP in 1970 something or there abouts, except me. Having colleagues that can architect MDM based solutions, and digress to explain how punch cards worked is cool. The group started off focusing on Finance, as the department head is one of the “fathers” of SAP’s accounting solutions, Dieter Scheuermann. What he realised is that we weren’t spending enough time with CFO’s and senior finance people. So my boss got the okay from Henning (I can name drop with the best of them) to get out there and talk to senior finance people and help them get more out of what they have already bought. It works really well and means we build strong relationships with a key part of our customer community. With the breadth of experience in the team, and the awesome internal and external network I think we are helping the finance functions get more out of SAP. For these finance folks we provide an alternative channel to SAP, and we are really building up that trusted advisor relationship. (see the links in the about page for more info). Jürgen Daum is also in the team. He knows far to much about controlling and finance. His website is a mine of information.(www.juergendaum.com)

SAP builds business software, and although there is a lot of focus on platforms and technology today, and that the technology is key for SAP’s long term growth and success, I personally believe that SAP’s competitive edge is that we have a lot of people that understand the complexities of business. Just as we have people who are passionate about the future platforms and GUis, we have lots of people who have passion and a deep knowledge of an industry or a functional area. When you speak to business experts, technology is simply not enough.

I have been in the HR space since I left university in 1991, so I was brought in to build the same sort of thing up for HR. I also cover the compliance topic, as a have a information technology law masters, and I am plodding through the world’s longest PhD, focusing on compliance in enterprise applications.

I’m faciliating the first HR best practice meeting in Zurich at the end of May, and we are hoping to have about 10-12 companies (20-25) discussing and sharing how they address issues such as retention, high potential development, recruitment, succession and the like. If you are a senior HR person reading this and interested in finding out more, drop me a note at thomas.otter@sap.com

vaporising middle management….with web 2.0?

I have been interested in history since I before could read. The Weimar republic introduced me to the issue of hyperinflation. The image of wheelbarrow of money to buy a loaf of bread is a haunting one.

We have a hyperinflation problem today in the workplace.

When my father was working for a listed company in the early 1980’s, he was the finance manager, that meant he ran the finance department and was on the board of the company. He reported to the general manager. Today things are rather different. Everyday I meet more and more vice presidents, senior vice presidents, executive vice presidents, directors, CFO, COOs and so on. I think there are more directors and VPs now than not. Titles have lost their meaning. Recently, when a friend of mine said proudly, “I’ve been made a director”, my father dryly asked, “under the terms of 1985 Companies Act?”

America has one Vice President. So why does a company need thousands of them? I think it is time for a job title revaluation. Which of you Chief senior executive commander vice presidents evangelist strategists is going to be first…?

What does this have to do with web 2.0? If it lives up to its hype it at the least should improve information flows in organisations. Nicholas Carr has an interesting post on this. He quotes McAffee:

It has historically been the case that as organizations grow it becomes more and more difficult for people within them to find a particular information resource – a person, a fact, a piece of knowledge or expertise. Enterprise 2.0 technologies, however, can be a force in the opposite direction. They can make large organizations in some ways more searchable, analyzable and navigable than smaller ones, and make it easier for people to find precisely what they’re looking for. The new technologies certainly don’t overcome all the dysfunctions of corporate scale, but they might be able to address some of them.

I will be reading more of this McAffee fellow, sound stuff. He compares Nupedia with Wikipedia. And comments..

…technologists have done a brilliant job at three tasks: building platforms to let lots of users express themselves, letting the structure of these platforms emerge over time instead of imposing it up front, and helping users deal with the resulting flood of content.

If web 2.0 does exactly what it says on the tin, it means that layers of excel and powerpoint assembling politcially-aware sycophantic middle-managers (VPs etc) can be vaporised. Knowledge workers (I hate that term) can make stuff, and those that need it can find it. We could have more developers, more support people and more sales people instead.

I should stop this and go with my wheelbarrow to a meeting.

web2.0