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SAP and the Strategy Management Game

So much for SAP not being willing to spend, at least at a pace with rival Oracle Corp., to acquire talent and technology.

• By Stephen Swoyer
• June 20, 2007

By most standards, ERP giant SAP AG had itself a productive May.

Early last month, SAP snapped up business performance management (BPM) specialist OutlookSoft Corp. Details of the deal weren’t disclosed, but rumor placed its value at a cool $500 million.

So much for SAP not being willing to spend, at least at a pace with rival Oracle Corp., to acquire talent and technology.

Also last month, SAP extended its existing relationships with Microsoft Corp. and Novell Inc. The ERP specialist notched deals with both vendors to promote its solutions on SQL Server 2005 and Linux, respectively.

At a rumored $500 million, SAP’s OutlookSoft grab admittedly pales in comparison to Oracle’s $3.3 billion acquisition of business intelligence (BI) and BPM powerhouse Hyperion Solutions Corp. But OutlookSoft has a lot less legacy baggage in tow than Hyperion, which is itself the product of two prior consolidations, and which acquired several notable vendors (including enterprise reporting stalwart Brio Software Corp.) over the years.

Next to Hyperion, OutlookSoft is a relatively lean BPM player with an uncluttered technology stack. In other words, SAP probably won’t have to make any difficult decisions about the disposition of—say—OutlookSoft’s analytic or reporting technologies. Oracle, on the other hand, will have to maintain Hyperion’s best-of-breed Essbase OLAP and Intelligence reporting products for some time to come.

The OutlookSoft acquisition is of a piece with a strategy that Lothar Schubert, director of NetWeaver solution marketing with SAP, outlined in an interview earlier this year. Referring to Oracle’s high-profile acquisitions of PeopleSoft, Siebel Systems, and even Retek—for which Oracle and SAP engaged in a protracted bidding war—Schubert conceded that SAP doesn’t have the same appetite for mega acquisitions that Oracle has. Instead, he argued, SAP seeks to acquire companies when and where it makes sense to do so.

SAP’s criteria in this regard are fairly straightforward, Schubert said. “Our strategy is to acquire [technologies] that help extend SAP NetWeaver. We want to make sure [the acquisitions we make are] a good fit. So we look for minimal overlap and maximum fit. We are not interested in growing our market share through acquisition,” he argued. (Schubert made these marks just one week prior to Oracle’s acquisition of Hyperion.)

Schubert cited SAP’s acquisition of strategy management (SM) specialist Pilot Software as a textbook case-in-point. “[Strategy Management] is really where you define and codify the strategy of the organization, so from top management [down] comes the strategy—say, you have to increase return of capital by X percent. Now if I’m in the customer support organization, I have my own objectives that I have to define, and they have to be linked ultimately to supporting the corporate strategy,” he explained. The key point, according to Schubert, is that Pilot’s software addresses a highly specific activity—viz., strategy management—that complements SAP’s existing BPM solutions. “Pilot … really fits right in. It closes the loop on the strategy execution aspect [of BPM], where not only SAP but also other [competitive] products traditionally fall short.”

That, in a nutshell, is SAP’s acquisition strategy. So what to make of its half-billion dollar splurge for OutlookSoft? After all, OutlookSoft does raise questions about SAP’s commitment to its Strategic Enterprise Management (SEM) vision—although officials were quick to point out that SAP plans to tap OutlookSoft as an application layer on top of SEM. There are other areas of potential overlap (or, at least, of non-complementarity), note Gartner analysts John Van Decker and Neil Chandler, who cite SAP’s SEM-based BCS product. In the same way, however, SAP disclosed plans to develop BCS alongside OutlookSoft’s own consolidation offering, using the latter as a “face”—or interface—to the underlying SEM-BCS engine. The upshot? If SAP follows through on these plans, it will have eliminated two of the most salient cases of product or feature overlap.

On the plus side, OutlookSoft gives SAP an effective counter to Oracle’s own (Hyperion-infused) value proposition, Van Decker and Chandler point out. For one thing, OutlookSoft’s eponymous BPM offering isn’t some cobbled together Frankenstack, but an all-in-one performance management suite based on a single data model.

Secondly, OutlookSoft not only gives SAP credible best-of-breed BPM functionality, but profitability and strategy management capabilities, too. (The latter could augment --and potentially overlap with—the SM capabilities that SAP picked up earlier this year from Pilot.) Add it all up, the Gartner duo argues, and SAP can now credibly counter BPM intrusions from without—in its own accounts, that is. There’s a further wrinkle here, too: OutlookSoft gives SAP better penetration into the CFO sanctum, Van Decker and Chandler note, such that SAP can credibly claim to address its customers’ BPM, governance (risk and compliance) and ERP financials requirements.

If this sort of value proposition sounds familiar, there’s a reason for that. “This approach is consistent with how Oracle is positioning its recent Hyperion acquisition,” Van Decker and Chandler point out. So OutlookSoft gives SAP a means to neatly counter Oracle’s own messaging; the rub, they argue, is that SAP must move quickly to capitalize on this. There’s a further rub, too, Van Decker and Chandler maintain: regardless of how diligently SAP tackles the problem of reconciling OutlookSoft’s BPM technology with its existing SEM assets, SAP SEM users will probably experience some degree of disruption.

“SAP will need to rapidly integrate OutlookSoft to work with BW. This will improve the user interface for CPM and improve integration with financial reporting and planning, but it will be disruptive for about 2,000 SEM users that will require change in future releases,” the Gartner duo note.