In 1972, five German IMB computer
analysts founded SAP (Systems Applications and Products in Data Processing).
The software they created allows information in a company’s value chain to be
coordinated and processed centrally. SAP software significantly reduces savings
in time and expenses. This software is highly focused on successful research
and development that result in creating and maintaining a competitive
advantage. SAP’s target audience is/was multi-billion dollar leading
corporations where they initially set out to develop a global base.
Porter’s Five Forces Framework
SAP’s degree of rivalry is medium to high
with competitors such as, but not limited to Oracle, NetSuite, PeopleSoft and
Microsoft Dynamics. These competitors are equally balanced within a fast
growing industry. Each competitor has high fixed costs as well exit barriers.
The possibility of this industry attracting new entrants is low to medium
because first because software product must be highly differentiated before a
new entrant stands a chance of competing with industry veterans. A new entrant
must also be able to meet the capital requirements necessary as well as future
switching costs. Bargaining powers of suppliers is not at all relevant is this
case. All of the knowledge that SAP requires is available in-house; company
officials develop the products organically. As stated in the case study,
bargaining powers for buyers are also relatively low because the purchase of
software is not made often, is expensive, and is only available through a
limited amount so sellers. Substitutes for software products of SAP’s caliber
are very low because they do not serve a different purpose or possess high
quality features or reach the same performance heights.
What competitive advantages exist for SAP
and how should they exploit those advantages?
SAP allows businesses to manage financial
transactions, product life cycles and supply chain activities. The software has
various analytical features, such as evaluating performance, reporting and decision-making.
SAP can analyze data from any source and conduct collaborative decision-making.
These features allow SAP to meet the needs of many complex businesses and
government organizations. The many competitive advantages SAP posses are:
globalization, innovation, marketing, trade secrets, and privacy. But SAP’s
most significant competitive advantage is that they acquired SuccessFactors.
SuccessFactors provided online tools for managing employee performance that
includes: performance management, setting goals and managing them, setting
compensation, and training; areas which SAP initially needed to improve.
Acquiring SuccessFactors also helped SAP to easily establish a presence in
cloud servicing and begin a new collaboration with Lars Dalgaard. When the two
entities merged, SuccessFactors’ software will be combined with SAP solutions
to provide a comprehensive offering to clients (Rao, 2012). SAP will continue
to offer its own Human Capital Management on premise solution but will be
pushing SuccessFactors’ performance, compensation, recruiting and learning
management products in the cloud. The talent management components from SAP’s
software will be selectively innovated in the future (Rao, 2012). Dalgaard
collaborated with SAP to run a newly formed cloud business unit after SAP
acquired SuccessFactors, the company he founded in 2001 (crunchbase.com). According
to CrunchBase.com, as a new member of the SAP Executive Board and the SAP
Global Managing Board, Lars Dalgaard owned all responsibility around the
company’s cloud business including strategy, product development, and all
related go-to-market capabilities. While Dalgaard was serving as a member of
SAP, the newfound collaboration was able to quickly increase its customer base
and create other strategic alliances with major consulting companies.
SAP was able to exploit their competitive
advantage on the one notion of solely acquiring SuccessFactors. According to
Lenna Rao “the New York Times reported
in December 2012, SAP saw SuccessFactors as one entry point into the cloud. A Forrester
analyst by the name of Paul Hamerman told the publication at the time that “The
cloud has been a small part of SAP’s revenue stream, about 2 percent; the deal
adds to the revenue base and shows SAP’s strong commitment to the
software-as-a-service business model” (Rao, 2012).
SAP’s existing products are still on-premise
offering and SuccessFactors will be deployed in the cloud. Since there are no
plans to phase out any SuccessFactors products, SAP explained that data and
analytics would be a focus area for further innovations in both SuccessFactors
and SAP’s offerings. Since SAP had no plans on phasing out any of
SuccessFactors implementations, I believe that they exploited this advantage to
not only establish a presence in cloud computing but attach their name to
something that was successful and thriving. SuccessFactors software will be
integrated with SAP’s data analysis product. SuccessFactors gave SAP the boost
it had been missing even though it was a leader in its current market. SAP generally
had several failed attempts at entering the cloud sector. SuccessFactors was on
the rise and SAP needed their expertise to stay relevant in their operating industry.