Cover Story

A new business model to fuel growth

As competition in the EAS market heats up vendors are innovating their marketing strategies to gain maximum business. SAP's new offering, A1S, could reshape the way midsize companies purchase, adopt and finance software applications. By Akhtar Pasha

SAP has a next-generation solution and a business model that could reshape the way mid-sized companies purchase, adopt and finance software applications. Complementing SAP’s existing portfolio for mid-sized companies, the solution will leverage a new enterprise service-oriented architecture (enterprise SOA) by design platform and will be available to customers through on-demand and hosted delivery for lowering the total cost of ownership. SAP’s latest move will help reach untapped mid-market segments.

It this a game changing approach? We attempt to answer that question by looking at A1S and its additional delivery channel (on-demand ERP), customer engagement and business model enabled by Enterprise SOA (ESAO) to reach the mid-market.

Nagaraj L Bhargava, vice president-Marketing & Sales Operations, SAP India Pvt Ltd says, “SAP has been working on an entirely new solution, code named A1S, to complement our existing solutions for mid-sized companies and to serve a new market—one that has not traditionally been open to an integrated business management software suite. A1S will be a highly standardized and off-the-shelf solution. Based on the SAP NetWeaver platform, A1S is an on-demand solution. It is designed specifically for fast-growing mid-sized companies with limited IT resources. This on-demand solution is being introduced through a phased launch, and early customers are actively working with the solution.” Sixty-five percent of SAP’s customers are small businesses and midsize companies. A1S adds to the existing portfolio with ready-to-use, cross-industry capabilities in a hosted suite, based on a new technology platform called enterprise SOA by design.

“It’s a new business with a new product, new technology to address a new market. We need to accelerate our customer acquisitions and A1S helps in realizing that vision,” says Bhargava. At this point, SAP is still being coy about precisely what A1S is going to be when it grows up. It’s based on enterprise service architecture and will be first delivered as an on-demand service. Service and support for A1S will not be expensive, and the on demand consumption model will allow customers to pay for the components that they use, on a subscription basis. Bhargava says that A1S will work best in a closed user group and is expected in the marketplace in 2008.

Analysts seem upbeat about this offering. R Ray Wang, principal analyst, Enterprise Application /Tech Industry Strategy, Forrester Research Inc, says, “The option of a hosted model (on-demand) provides users with most of the advantages of SaaS—a monthly payment model, minimal IT footprint requirements and operational expenditure verses capital expenditure. However, in the long term SAP needs to have a multi-tenant strategy if it hopes to scale. While for customers, they will not really see a difference with single tenant versus multi-tenant, without multi-tenant SaaS, it becomes increasingly hard for SAP to manage so many different code deployments and customization or configuration options. Moving to a multi-tenant SaaS delivery model will give SAP the scale it needs to address many more customers and address upgrades.”

To push the A1S into the market, SAP is pumping Euro 300-400 million over eight quarters into delivery and operations. Of this the majority of investments will go into sales and marketing and ‘cost of software and software-related services’. As of H1 2007, SAP has invested Euro 50 million.

Built on Enterprise SOA

Companies face incredible pressure in global markets. To survive in such an atmosphere, companies need to develop a competitive advantage and build a sustainable business by accelerating innovation, developing operational excellence, and empowering information workers. Business processes are the key to unlocking the potential of these strategies for competitive differentiation. Enterprise service-oriented architecture (ESOA) allows you to quickly build and modify your business processes to adapt to rapidly changing markets.

Let’s say an organization’s order processing function involves three commodity areas: Order Capture, Order Validation, and Order Invoicing. Order Fulfillment, however, is viewed as an opportunity to achieve competitive advantage through a differentiated business process. A traditional ERP-based solution implementation could provide a few standard options to configure the entire process, opting for repeatable, efficient operations and limited out-of-the-box functionality. With an Enterprise SOA-based approach, this organization can use standardized out-of-the box processes for Order Capture, Order Validation and Invoicing, while managing Order Fulfillment with a custom solution outside of the boundaries of SAP ERP. ESOA facilitates the implementation of an end-to-end business process that functions seamlessly, combining selective innovation with strategic standardization.

Atul Sareen, director-Operations, SAP India says, “With ESOA, you can link standalone processes to quickly compose new end-to-end processes, selectively redesign existing processes, and facilitate seamless process design and execution across the company. ESOA unleashes the untapped potential of your existing business processes within and across company boundaries so you are better able to compete.” He continues that Enterprise SOA can also help companies in their efforts to define business processes in ways that make sense for business users. For example, consider the enterprise service for ‘Cancelling an Order’. With Enterprise SOA, business users can create required processes using the language of business. ‘Cancel order’, as you can see below, is a meaningful aggregation of several granular Web services such as ‘a call to delete an entry from a database’. The higher granularity helps to reduce the number of services that need to be managed, and whose integrity must be maintained, to facilitate lower business process risk.

Sareen says, “Earlier our customers looked at SAP from a functional and operational function per se. But last year’s prospects are evaluating enterprise readiness of our application. Asian Paints, TAFE, Jindal Stainless, Dr Reddy’s Lab, Suzlon, ABB, ONGC, TVS Motors, House of Pearls, Subhiksha and many more are using enterprise SAP around NetWeaver.”

Wang says, “Overall business benefits may include the ability to adapt systems to business processes - not vice versa, deliver richer and relevant analytics, and connect additional stakeholders (i.e. customers, suppliers, partners, and employees) to the core ERP. Technology benefits may possibly include the eradication of customizations via configuration, reduction of integration costs via adoption of open standards, and improvement in interoperability and support for best-of-breed solutions and composite applications.”

Additionally SAP’s business process platform (BPP), common application development framework (CAF) and SAP Developer Network (SDN) partners will cover non-SAP applications. Simon Dale, senior vice president & CTO, SAP AJ says, “The reality of ESOA is much better than a year ago. We believe the strong sign-up rates with 13,700 customers of NetWeaver indicate that the industry is accelerating towards a business process-driven model. It is the fully-functional business process platform available in the market today.” SAP has delivered 1,000 enterprise services for the SAP Business Suite applications through the Enterprise Services Workplace site on SDN that has 750,000 members. “We are capitalizing on Business Process Experts (BPX) that has 90,000 registered members that are driving real-time business process innovations by providing a combination of industry business process and services content, composition software tools from a proven business process platform,” says Dale.

Wang acknowledges that SAP truly has a strong partner culture in helping partners achieve success in building xApps and leveraging ESOA. The Composite Application Framework (CAF) provides a programming model to build applications on ESOA. CAF should reduce this complexity and shift programming to a ‘model, generate, integrate, and reuse’ approach. This hopefully should standardize interfaces and coding, reduce complexity and development time, and increase productivity. Key CAF tools include the UI, process, and services modeler. SAP is providing partners with the metadata and tools for modeling. The hope is that applications will rely more on NetWeaver and not lower level APIs. Partners should be able to focus

more on business logic and pattern-based development. According to Wang currently to build an application one need to know—SAP Enterprise Portal and Development Kit, ABAP WorkBench, SAP NetWeaver Developer Studio, SAP XI, Knowledge Management and SAP Back End systems.

Wang says that today, the most common components in use by partners are the NetWeaver application server and portal. Many customers have a need to bring together SAP and non-SAP information into a single user interface. Going forward existing customers and new customers may be able to take advantage of Visual Composer to design, modify, and configure new business processes and applications using their business analyst instead of a developer.

IVN = enterprise services

SAP has created Industry Value Networks (IVN) through which customers, partners, ISVs, SIs and technology vendors and leading industries from various verticals can come together to innovate, collaborate and develop a set of enterprise services that will be built into applications and will be released as enhancement packs in a later release. Dale adds that we will be releasing enhancement packs that contain more enterprise services in the next six to nine months. Sareen says, “We have created eight to ten IVNs to address key business challenges and solutions industries such as Chemicals, Consumer Products, High Tech, Public Sector, Retail, Oil & gas, Mill Products and Professional Services.”

The impact of this solution on the market will unfold towards the end of the year. It underscores the seriousness with which the SMB segment is taken by Indian companies.