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Siemens bypassed SAP for a small SaaS vendor for ERP: Isolated Case Or Deep Problem?

By annie shum | September 20, 2009

Unhappy with the value it was getting in return for its 17% annual fees, and looking to innovate with SaaS, Siemens has bypassed strategic customer/partner SAP twice in the past few months.

By Bob Evans, InformationWeek Sept. 17, 2009

Some cracks have appeared recently in the lengthy and deep strategic relationship between SAP and Siemens, which is not only one of SAP’s largest global customers but also a reseller/integrator of SAP software in certain industries. Are these cracks just superficial and shallow and barely worth the time it takes to read the headlines about them? Is the SAP-Siemens relationship/partnership, based on long-standing and mutually beneficial interdependence plus shared German heritage, more solid than ever before?

Or do these fissures run more deeply than SAP would like to acknowledge? Do they reflect a growing unease within Siemens that SAP and its products as well as its business models are not all evolving as rapidly as those of Siemens, one of SAP’s largest global customers? Is it fair to question whether other global corporations are scrutinizing the same issues and factors and that have led Siemens to go strongly against the wishes of its longtime customer/partner on two very significant decisions within just the past 100 days?

Or is it all just coincidence? The regular ebb and flow of buyer-seller interactions? Nothing more than business as usual among big global companies and the enterprise software companies whose products run those global organizations?

NEWS ITEM: June 8, 2009: Looking to buy a new global HR application, Siemens rejects SAP’s human-capital management product and instead gives a 420,000-seat license to a SaaS vendor called SuccessFactors that is less than 1/100th the size of SAP. InformationWeek’s Mary Hayes reported that Siemens made a “strategic board-level decision” to go with SuccessFactors, believing it was a better “for Siemens to focus on its strengths in key industries, foster a performance-based and ethics-minded culture, and innovate by linking technology and business ideas, in order to increase revenue, profitability, and improve cash flow.”

NEWS ITEM: Sept. 12, 2009: A German business magazine’s website reports that Siemens is dropping SAP as the provider of maintenance and support for the widespread SAP applications that will continue to power Siemens global operations. Instead, Siemens will look at a range of alternative providers to handle the maintenance and support of its SAP apps, with potential prospects ranging from huge providers such as HCL and IBM Global Services to upstart Rimini Street. In response, SAP issues a statement that does not deny that Siemens has cancelled its SAP maintenance contracts, but does say that “SAP is currently working with Siemens to deepen the relationship in a multitude of areas.”

So let’s take a quick look at the premise that says these SAP-Siemens cracks are merely superficial and don’t signify anything. If that’s true, then that would mean that among the large number of global corporations using SAP enterprise applications, Siemens is unique in its belief that it is no longer receiving fair value from SAP for the 17% annual maintenance fees it pays. But we know that’s not the case—big companies in all types of industries are chafing (to put it politely) at the annual maintenance fees charged by not only SAP but also Oracle.

In addition, the isolated/superficial premise would also mean that Siemens is the only big multinational that has switched to or is evaluating SaaS-based global applications, and that almost all other big global firms will stick with big traditional enterprise HR apps. But we also know that’s not the case, either. And while these additional companies going the SaaS route might not be the size of Siemens (very, very few companies are), they sure do use enterprise apps and they have decided not to go with HR from SAP: Flextronics, Merrill Lynch, Disney, Sony, Chiquita Brands, Domino’s, Kodak, H.B. Fuller, and more. That would leave two other alternative possibilities: either it’s all just a big coincidence, or there’s a good chance that just as Siemens chose to bypass SAP for HR and also for overall application maintenance, so too are some/many other big companies very likely weighing their options as well.

As for coincidence, well, I for one don’t believe in them. I don’t think these issues are isolated, superficial, one-offs, or inconsequential. Rather, I think they represent a growing sentiment that has as much or more to do with the fundamental business and revenue models of SAP (and Oracle) as with product strategy, technical excellence, or other product-related factors.
And more and more CIOs are saying that the enterprise-app business model of the past 15 years, with fat annual fees as the foundation, no longer match the needs and future plans of those customers. At a time when they are striving to lower the cost of infrastructure in every possible way, they are told that maintenance fees of 22% (Oracle) and 17% (SAP) are fixed, immutable, and permanent. They are, to borrow a term from the general enterprise-app philsophy, perpetual.

The problem is, most of the rest of the world has become quite fluid, quite unfixed, quite time-shifted rather than perpetual. And I think what drove those momentous decisions by Siemens was a recognition that its incredibly strategic and longtime business partner SAP could no longer keep up across the board with the pace and scope of change that Siemens requires across all of its operations and systems and people if it is going to be able to keep up with its highly demanding and highly dynamic customers well into the 21st century.

Bottom line: The demands that CEOs and boards are putting on CIOs to reduce internal IT budgets by lowering the cost of infrastructure and maintenance is not going to go away, and that means the angst and grumbling and sense of unfairness from many CIOs about immutable 17% and 22% maintenance fees isn’t going to go anywhere either. When the irresistible force of new CIO budget mandates and priorities meets the immovable object of annual fees required to sustain software-vendor profit margins, something’s got to give. For Siemens, that something was part of what had been an extraordinary relationship with SAP. And I don’t think Siemens will be the only company to react precisely that way when its business imperatives slam into the immovable object of a business model whose time appears to be over.

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