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Different is hard: SAP - Business by Design

The blogosphere has been buzzing over the last couple of weeks about the recently announced delays in SAP's Software as a Service mid-market ERP Suite, Business by Design, now delayed to the end of 2009 at the earliest.

In late April, Dennis Howlett was one of the first to write about the pending delay, folowed by other top bloggers including Larry Dignan, Phil Wainewright, Josh Greenbaum, Vinnie Mirchandani and Dennis Howlett again... The gist of all of these reports is that for a variety of technical and business reasons, the product isn't ready and SAP is both delaying the launch and reducing the level of investment in the product.

I found Phil Waineright's comments of the impact of the news to be spot on. He says "SAP put its stamp of approval on the on-demand model. Now that it has said customers will have to wait another year or more before they can buy it (due to scaling problems, no less), the company has created the worst of all worlds: it has validated a market and then vacated it, giving competitors a free run. Even SAP canít spin FUD (fear, uncertainty and doubt) for as long as 18 months ó especially not in the on-demand market, where customers can be up-and-running within weeks of placing an order."

What I haven't seen yet on the blogosphere is a deeper analysis of why at such a large and well run company like SAP a failure like this was almost certain to happen. Michael Krigsman started a discussion over at IT Project Failures focused mostly on SAP's large enterprise culture having a difficult time delivering on a mid-market solution. Others have focused on the technology failures with Business by Design that SAP has disclosed such as performance problems due to the "Mega-tenancy" model SAP is trying to use instead of the multi-tenancy model most other SaaS applications use.

My experience tells me that most of these analyses are missing the forest for the trees. What's really going on here is closer to the innovators dilemma than to a narrow set of technical issues related to SAP BBD.

I think the challenges SAP Business by Design faces are much more about the fundamental barriers to innovation within a large enterprise. I saw this first-hand when I was acquired by IBM, and we tried to build what was effectively a brand-new applications business inside of a company that was fantastic at infrastructure. A new product line for SAP focused on the mid-market and delivered via SaaS was destined to run into the brick walls described in the innovators dilemma.

First and foremost are the cultural challenges a new and innovative initiative that is outside of the core competancy faces at any very large company. The farther from the markets, buyers, technologies or operating models the new initiative is, the harder it will be for it to survive or thrive within the parent organization. On the inside it sometimes feels like corporate sends out white blood cells to choke off the invading entity. I am sure this is what it feels like at Business by Design.

Why does this happen ? By definition new initiatives are small, but to have any real impact and visibility for a multi-billion dollar company a new project has to be enormous. When the core business falters, as SAP's is right now, attention is naturally going to shift back to preserving the core. This is predictably happening to Business by Design, with the recent news of a $160 million reduction in funding.

At large companies the best and most senior people don't like working on innovative projects - because their value to the company is in their internal network and in marshalling huge resources. And in big companies like SAP, organizations like sales and marketing and services are always matrix organizations, organized by country or region, and naturally focus on the biggest lines of business - they are goaled on making their numbers, not on helping an innovative startup business succeed. They gravitate towards the most mature, easiest to sell products and lowest risk products for their current customers - and not to brand new, risky products with unproven delivery models. Country sales organizations at large companies typically go so far as to block access to the market for new and innovative product lines - SAP likely hasn't hit this yet barrier yet since they haven't rolled out, but they are certain to as they move forward.

So my experience, and a lot of history, shows that those people who try to evangelize innovative new products that are outside of the company's core get frustrated and leave. Witness the challenges that Shai Agassi, who is just about the ultimate change agent, ran into, or what is already starting to happen to the folks from Business Objects.

I could also go on and on about the technological challenges that SaaS poses to an enterprise software giant like SAP, such as the multi-tenancy vs. mega-tenancy discussions already going on in the blogosphere. Or the operating challenges of being good at SaaS, like excelling in meeting on reliability, security and uptime commitments while at the same time issuing new features and enhancements monthly - this requires vastly different competencies than needed in the typical two year innovation cycle at large software firms. Or the business model challenges of the subscription model, which comes with the need to be excellent at provisioning, metering and renewals, which are business processes that do not exist and are incompatible with existing business processes at enterprise software companies like SAP. Or the channel - as I've written here before - that few companies have fully thought through the intersection of SaaS and channels and all the things that need to be done to excel at both.

SAP is an amazing, well run company. They have done a terrific job setting the boardroom agenda in large enterprise on-premises ERP. But that said, I don't believe SAP has really even started to run into many of these hurdles they are going to face in the SaaS world - though I do believe they will ultimately face them all. I think what has hurt Business by Design is the very same dynamic that crushes projects that are different at any large company - the institutional and cultural hurdles faced by any new business outside of the core - and that's the definition of the innovators dilemma. SaaS just makes it harder because it's that much more different from traditional models.

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