SAP's history and development as an enterprise resource planning company

SAP'S EXTERNAL FINANCIAL REPORTING

SAP External Financial Reporting

SAP's external financial reporting

History of SAP

SAP has a proud 40-year history that is founded on their mantra of innovation. Their success has come from their innovative culture. The company was founded in 1972 when five like-minded former IBM employees came together and created a company with the vision of providing clients with technological innovations. The company was called Systemanalyse und Programmentwicklung (SAP) which was German for System Analysis and Program Development. The company's vision was to provide standard application software for real-time processing of data. It was formed as a private partnership under the German Civil Code with the headquarters in Weinheim, Germany Mohapatra, 2009.

The company began with only one customer, Imperial Chemical Industries (ICI) and at the time, they had just nine employees. At the end of the first year, the company had generated DM 620,000 in revenue Volkmann, Tokarski, & Grunhagen, 2010()

In 1973, the company designed its first financial accounting system which was known as RF. This attracted more customers and helped the company to grow its bottom line. One year later in 1974, SAP demonstrated flexibility by converting the RF financial system from the DOS operating system to OS. This was done over a period of 8 weeks. By the end of the first two years, SAP had a list of 40 customers. The company then launched their RM system in 1975 which helped companies handle more processes such as inventory management, invoicing and purchasing. This was then followed by integration of all applications to form an enterprise resource planning system (ERP) Adam & Sammon, 2004()

In 1981, the private partnership was dissolved and its rights passed on to SAP GmbH which was first formed as a sales and support subsidiary to SAP in 1976. By this time, the company had about 30 employees and a revenue base of DM 3.81 million. At the same time, the company redesigned its product and launched SAP R/2. Seven years later in 1988, SAP GmbH transferred into SAP AG which was short for Aktiengesellschaft (corporation). The company started publicly trading on November 4th on the Frankfurt and Stuttgart stock exchanges. The company was listed on the Dow Jones in September of 2003 Volkmann et al., 2010()

Over the years, SAP has also acquired several companies. In 2008, it acquired Business Objects which was a business intelligence company. The company's products were added to SAP's portfolio. Two years later in 2010, the company acquired Sybase which was the largest business service and software provided and specialized in management of information and use of mobile data. In 2011, SAP AG acquired SuccessFactors Inc. To enable it gain competitive advantage against Oracle Corporation in cloud computing. In May of 2012, SAP AG stated its plans to acquired Ariba Inc. subject to shareholder and regulatory approval.

Company overview

The company focuses on six sectors of the industry which are discrete industries, process industries, consumer industries, financial services, service industries and public services. The company has a market capitalization of $86 billion with a well-balanced shareholder structure. The shareholders continuously participate in the success of SAP through dividend payouts and share buybacks. In the 2011 financial year, the company had total revenue of 14.23 billion euros and profit after tax was 3.44 billion euros. The shareholders were given a dividend of 1.1 euros per share in the first half of 2012 which was an increase from the 0.6 euros per share that they were given the previous year SAP, 2012()

SAP prides itself in having a robust business model where software revenue is the most important driver of revenue. The company generates additional revenues from other services such as customer support, maintenance and consultancy. Software revenue is realized through sales of licenses for the use of SAP products. The company provides their software licenses as a package with maintenance service which is calculated monthly. This model allows the company to gain one-time revenue through software licenses and recurring revenue from monthly maintenance services. This has allowed the company to maintain strong growth while at the same time allowing them to be shielded from economic fluctuations that come as a result of recurring revenues forming a significant part of the company's total revenue SAP, 2012()

Services provided

SAP has five market categories in which it operates. These are mobile, applications, analytics, database and technology. The company has integrated the first three categories to help increase their market leadership in existing market categories of mobile, applications, and analytics. SAP has positioned itself as a cloud solution provider as well as database and technology company. SAP's products are focused on creating a future for real-time analysis of business information while bearing mobile and social capabilities that are important for business users to access any information they need to make better-informed decisions for their companies or organizations. This helps SAP's customers improve their operational and financial performance greatly.

The company's services are active global support, business maps, consultancy, custom development, education, financing, managed services, ramp-up, user performance management, BPO services, solution manager and packaged services Lau, 2005.

Among the most important services provided by SAP is the enterprise services workplace. This is a central place for SAP customers to view consolidated information about all their available enterprise services being provided by SAP. This solution allows customers to provide different entry points for different roles based on the permissions the organization sets. This service is cloud based and thus allows the customers huge flexibility, adaptability, efficiency and openness. It reduces their infrastructure and technology costs by allowing them to reuse their available software components while not relying on their hardware technologies to serve the ERP solutions. This has enabled ERP adoption to be much easier for the company's clientele and has made it a more attractive option for small and medium-sized companies.

Technologies and future products

SAP has always strived to be a leader in technological innovation among its competitors. Its main product which is the SAP ERP is sold as part of the SAP business suite. The SAP ERP system has a three-tier architecture involving database, client side and application server. The ERP is run on mainframe or server architecture but with the company's acquisition of SuccessFactors Inc., the ERP system is now cloud-based and features a range of mobile applications.

SAP's products include Business ByDesign which is a SaaS (software as a service) product which offers a fully integrated ERP for the clients on demand basis. This is the main business intelligence suite for SAP and received a great boost when the company acquired Business Objects in 2007. SME product include SAP business all-in-one and SAP business one. These products are also ERP products but are tailored for SMEs which have little operational expenditure for infrastructure and technological improvements. The company's latest product is the SAP high performance analytics appliance (HANA) which is an in-memory appliance for BI that allows for real-time analytics, mobile and social integration to help in the decision-making process. SAP enterprise learning is a business learning management system that has led to huge partnerships with organizations such as Adobe to provide this product as part of Adobe Connect.

Customers they support

SAP has served over 195,000 customers since it was formed in 1972. The company's customers are from the four geographic regions which the company operates with almost equal representation of each region showing that SAP operates in a truly global market. Many of the company's investors are also its customers. Initially, SAP targeted large publicly traded corporations as its clients but over the years, the company has developed solutions for small and medium size enterprises (SMEs) in the world. SAP's solution for small and medium size enterprises (SMEs) are delivered through the company's global partner network which has allowed the company to be profitable and successful in improving marketing and supply chain efficiency to enable SAP reach more SMEs thus increasing their customer base.

Some of the company's customers include Nongfu Spring which is a leading producer of bottled water in China, Union Pacific, Baker Hughes, Philippine logistics, and Sempra Energy. The company recently launched the SAP community network which is a community of customers, employees, partners and influencers who take roles of consultants, integrators, developers and business analysts to help each other learn about the company's products, business best practices, mobile and cloud applications. To date, the community has over 2 million members who represent a wide range of roles and help to train and share technical and non-technical knowledge on the use of SAP products.

External financial reporting procedures and process

SAP's external financial reporting procedures and processes are conducted by an independent party which allows for reporting relationships and communication channels to be created for any discrepancies noted. It also helps to prevent interference in the audit process to ensure company stakeholders receive accurate and timely information regarding the company. Through providing external auditors with access to any data they require, SAP is able to create an enabling environment for the auditors to conduct their audit and report their findings accurately. The external auditors are also allowed to work objectively. This means that they are free from bias and they are impartial in their analysis and decision-making regarding SAP's financial statements. In addition to using auditors for their own financial statements, the company also seeks advice from the external auditors during the design, testing and implementation of their products and services in order to ensure they meet all audit concerns. The involvement of auditors in the design process of SAP's products has been a key selling point for the reliability and accuracy of the business intelligence, analysis and performance management platforms that SAP provides.

SAP ensures to follow all rules and regulations set out by regulatory authorities in its external financial reporting. This includes providing evidence of all transactions carried out. Even in the design and implementation of their ERP system, SAP ensures there is an accurate audit trail that enables external auditors to do their work with accuracy. SAP also has internal controls and a reporting framework that is intentionally set to actively prevent or detect any issues in the financial reporting which may be as a result of intentional or unintentional misreporting. Internal control over the financial reporting process helps to provide reasonable assurance on the reliability of all financial reporting provided by the company to be in accordance to the general accepted accounting principles (GAAP). It includes maintenance of records in reasonable detail, approval processes for major purchases such as company assets and acquisitions and assurance of incomes and expenditures of company assets being in accordance with management authorization. These internal controls are also checked by the external auditor to ensure their accuracy and reliability. Where discrepancies are found in the internal controls or the financial statements of the organization, the external auditor makes sure to highlight this for the internal auditors at SAP who then use this information to recheck the financial statements for accuracy.

Aside from having an external auditor and internal controls to ensure the accuracy and timeliness of its financial statements, SAP provides information on its financial performance publicly on the internet and via other platforms such as Twitter and Facebook.