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.


2 thoughts on “Vinnie the sequel…Charles in the supporting role.”

  1. It is clear that unless you dedicate funds to R&D – all the great conversations aobut helping companies improve process are meaningless – you still need the code – that’s what SAP customers pay for.

    People like Vinnie and I question whether SAP (and others) really understands how to capture and then code that collective knowledge. In today’s economy, I’d say you need more R&D – period.

  2. Thomas, on a number of flights, especially in airlines not doing that well, I have heard recently “We never forget you have a choice”

    Choice is what we are talking about here. Companies, and CIOs are under intense pressure to innovate. As a CIO, if I have a dollar to spend with SAP or Oracle, and if I see only 10-15% is going in to R&D (and much of that in to bug fixes and tweaks and various ambitious SOA plans) and on the other hand I see all the cheap innovation going on around Web 2.0, telemetry, mobile apps, some offshored BPO I am going to increasingly make a choice to save the entire dollar and use it for “full oxygen” and do my own applied innovation.

    Budgets are finite – most of the big software vendors are delivering what is called “Utility” functionality – to keep the lights on. Most CIOs I know are crunching that down to free up money for innovation. You want examples of the fabulous stuff CIOs are doing at a fraction of costs enterprise apps take – often your own customers like Steelcase and Jetblue – read my other blog on innovation – at

    I am sure you add a lot of value to clients. But the consulting part of your work is a real small part of the SGA compared to the TV ads, the sales commissions….

    look CIOs cannot dictate how SAP spends revenues. If you continue to say we will continue to spend 45% in SGA and 12% in R&D till you turn blue, they cannot make you change that. But they sure and hell can take the dollars away. IBM has found that out, CA has, number of vendors have in the past…

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