Improving the CRM Suite of Software Applications Essay

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Improving the CRM Suite of Software Applications at SAP

SAP AG (NYSE:SAP) is the worldwide leader in Enterprise Resource Planning (ERP) and one of the top companies globally in Customer Relationship management (CRM) software as well. While their dominance in ERP is solid, with Gartner, a leading industry research firm reporting that SAP has 25% global market share today, it's global CRM market share trails Salesforce.com who is the worldwide leader with 14% market share worldwide (SAP Investor Relations, 2013). SAP is second globally with 12.9% market share. There are many factors contributing to SAP trailing Salesforce.com, the most significant being the slow response to the shift to cloud computing platforms in general, and migrating their CRM applications onto a Software-as-a-Service (SaaS) delivery model. Salesforce is the global leader in CRM due to their rapid development of CRM applications on the SaaS platform, greater responsiveness to their growing customer base, and the ability to sell their software using operating expense (OPEX)-based pricing models (Wang, Feng, 2012). OPEX is a strategy SaaS-based software vendors are using to get their applications paid for out of operating expense budgets. SAP and many larger enterprise software vendors have continually relied on capital expense (CAPEX) based budgeting with their customers. CAPEX often requires the board of directors of a customers' company to allocate millions of dollars months or even years in advance. CAPEX slows down sales cycles yet solidifies a given enterprise software application in a company often for years and in many cases, decades (Nah, Delgado, 2006). This makes the risk inherent in CAPEX expenditures very high, and in the case of CRM systems, a challenge to sell around as OPEX is lower risk, higher potential return, and greater speed to deploy across an entire company quickly (Lin, Su, Chien, 2006). All of these factors are what SAP routinely competes against in their CRM business. Their ERP base of customers form a very solid foundation of recurring revenue as all of them pay maintenance fees yearly to keep their ERP systems current. SAP has been known to charge up to 18% of the purchase price for yearly maintenance fees with competitors including Oracle charging up to 22% (Nah, Delgado, 2006). This is a significant revenue stream that SAP can continually rely on to pay for their continued operations. The trouble is that the needs of CRM prospects, from the small and medium businesses to large enterprises, are moving faster than they can react to. While they are leading Worldwide ERP Sales today as shown in Figure 1 below, SAP has yet to define a strategy of market leadership in CRM globally. The intent of this analysis is to provide prescriptive guidance to SAP on how to overcome these challenges and lead worldwide sales of CRM applications.

Figure 1: Worldwide ERP Market Share, 2012

Source (please follow the link for the article on Forbes)

Assessing and Critiquing SAP's CRM Strategy

SAP's dominance in ERP has been a solid foundation to build their CRM applications business on, and the lessons learned from their core business have given the company advantages in how they manage analytics, system integration and distributed order management. It has also given SAP a sizeable captive customer base to sell their CRM applications into (Bednarz, 2006). SAP initially defined their CRM suite of applications in the core areas of Sales Force Automation (SFA), Marketing Automation, Customer Service Automation, Customer Analytics and Service Lifecycle Management. SAP has also unified each of these area together using an analytics layer across their platform, ensuring that each application can gain insights from the reporting and data captured across customers' strategies. SAP's focus on these five core areas give the company the ability to compete in manufacturing, healthcare, financial services, consumer packaged goods, and aerospace and defense manufacturing. One of the most valuable lessons learned by SAP from selling their ERP systems for decades was the need for unifying a diverse application base with a solid analytics and reporting platform (Bednarz, 2006). While the company was very successful at this, it did not concentrate on usability or the user experience of using their software. The most common complaint of their ERP customers is the lack of usability and the need for learning entire strings of commands that should really be included in the software's interface. This aspect of usability and making the user experience as streamlined as possible is one of the most dominant competitive advantages of Salesforce.com, in conjunction with their exclusive reliance on the SaaS platform which makes CAPEX-based selling strategies attainable. SAP trails significantly on these factors and as a result is not the global leader in CRM, despite their sizable worldwide customer base of ERP systems. Figure 2, Worldwide CRM Software Spending By Vendor, 2012 shows SAP in second place globally. SAP will continue to battle to just hold onto second place if the company doesn't transform into a more cloud-centric business model that supports a CAPEX-based business model, and significantly improve their usability including the user experience their applications provide. SAP is trending towards 3rd place, behind Oracle, as both companies are more reliant on a CAPEX-based sales process due to their high levels of dependence on maintenance revenues. Salesforce.com has an innate financial advantage in pursuing OPEX-based selling strategies as their financial model is designed to not be dependent on annual maintenance revenue streams but be more reliant on a subscription-based revenue recognition model.

Figure 2: Worldwide CRM Market Share, 2012

Source: (please follow the link for the article on Forbes)

SAP has a two strategic advantages over Oracle however, in that it has a significant, stable installed base of ERP systems globally, many of them entrenched in Fortune 1,000 accounts. Second, SAP has stability in their CRM product strategy, while Oracle is highly fragmented in their product strategy with seven different versions of CRM systems (SAP Investor Relations, 2013). Oracle has grown their CRM product strategy primarily through mergers and acquisitions, and today is seeing 56% of total CRM revenue globally from their Siebel Systems installed base of applications. There are six other CRM application suites, yet none of them deliver over 10% of CRM revenue individually. For Oracle, this is a support and maintenance nightmare as they will need to support these seven CRM applications concurrently for at least four more years.

SAP is winning market share away from Oracle as a result of the diffused focus the latter has, given the seven different versions of CRM the company must maintain. SAP also has the potential to benefit from the lessons learned from the failures of their ERP systems however. As SAP is the global market leader in ERP system sales, there is an abundance of insight, intelligence and knowledge of where and how they have failed in implementing and fine-tuning enterprise systems. Empirical studies have been completed on SAP ERP system installations and a series of key success factors defined as a result (Nah, Delgado, 2006). The CRM engineering, product management and product marketing organizations need to gain access to internal data that further substantiates these eight critical success factors shown in Table 1: SAP Critical Success Factors For Implementation. The CRM teams need to more effectively have these critical success factors reflected in their implementations as approximately 15% of their current CRM implementations fail in large-scale enterprises (SAP Investor Relations, 2013).

Table 1: SAP Critical Success Factors For Implementation

Sources: (Velcu, 2010) (Nah, Delgado, 2006)

These eight factors shown in Table 1 typify the most successful SAP implementations. Taking a contrarian view of these elements also shows why SAP ERP and CRM projects fail and where there is room for significant improvement. Where SAP CRM implementations fail most often are in the areas of creating an effective, scalable framework that will allow for top management to define clear goals and objectives. These three critical success factors apply equally across SAP ERP and CRM system implementations as having a top management champion is essential for either type of enterprise-wide deployment to be successful (Nah, Delgado, 2006). What makes CRM even more challenging however is the need for planning and executing a change management program that can encompass all eight critical success factors for enterprise system performance and growth (Velcu, 2010). SAP will need to gain greater control over their change management processes in key accounts during new installations and upgrades if they are going to hold onto the market share they have.

The orchestrating of critical success factors for implementation must be managed effectively across the five core modules that comprise their CRM system if additional market share is going to be earned. These include Sales Force Automation (SFA), Marketing Automation, Customer Service Automation and Service Lifecycle Management (SAP Investor Relations, 2013). Underscoring all of these is a solid customer analytics layer that provides real-time updates across the entire enterprise-wide system or platform. Salesforce.com delivers analytics at the platform level, which makes it possible for all applications to gain access and use them. For SAP, each connection of analytics…[continue]

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