Henning Kagermann, co-CEO of SAP, had some interesting things to tell Germany’s Die Welt recently. Here are some of his more colorful disclosures:

• SAP, having added four non-Germans to its Executive Board, no longer considers itself “too German”; however, Kagermann recognizes that the company is “too male.” It remains to be seen if this recognition will result in the appointment of any women to the highest echelons of SAP.
• Kagermann thinks that SAP should add a senior executive and/or Executive Board member from Asia.
• SAP will be spending 12% of sales on R&D, down from its current 14%. This will improve SAP’s profitability.
• Don’t expect SAP to dilute its commitment to its native Germany. SAP plans to maintain its German development resources despite Germany’s shortage of engineers and environment of high wages.

In terms of executive diversity, maybe SAP can take some tips from arch-rival Oracle’s appointments of Charles Phillips and Safra Catz.

Demir Barlas, Site Editor

Levi Strauss, the iconic jeans company, has experienced a 19% drop-off in U.S. sales, and a 98% collapse in Q2 08 profitability. In an SEC filing and subsequent conference call, Levi Strauss placed much of the blame for the bad performance on SAP.

Levi Strauss, which began to roll out SAP globally in 2003, has certainly faced a challenging technology environment of late. From an IT perspective, the earlier part of this decade was dominated by trying to achieve compliance with Wal-Mart’s electronic trading mandates; afterwards, Levi Strauss installed SAP in its Asia-Pacific operations. The subsequent SAP project in the U.S. may have been rushed. Whatever the case, things came to a head in Q2 08 as Levi Strauss’ electronic systems simply shut down for a week. In addition to the platform problems, the company has also had to cope with falling demand for Dockers.

Levi Strauss hasn’t abandoned SAP, and is in fact hiring as many as 11 SAP consultants and experts to work in the company’s San Francisco headquarters. Nor has the company claimed that the SAP software is buggy; indeed, as most of Levi Strauss’ direct competitors successfully use SAP, that would be a hard claim to make.

CIO David Bergen, who was the SAP champion at Levi Strauss, is apparently no longer with the company, as his picture and biography on the Levi Strauss Web site were quietly dropped earlier this year (however, Bergen’s LinkedIn page still claims that he is CIO of Levi Strauss).

It’s worth noting that ex-CIO Bergen came from the IT application development world. He had only two years of experience as a CIO before joining Levi Strauss in 2000. From a risk management perspective, it was unjustifiable for Levi Strauss not to hire a senior CIO, well-versed in process-driven implementations and project management, to preside over the company’s IT strategy at such a critical time. Perhaps the company has paid the price for this decision.

In any case, SAP says that the software problem at Levi-Strauss is over: “We have a strong relationship with Levi Strauss and they successfully leverage SAP solutions to support many areas of their business,” stated SAP spokesperson Lindsey Held. “As part of this close partnership we work together to quickly resolve any challenges that arise. The software-specific challenge noted in their earnings was immediately addressed by the organizations involved and is largely solved at this point.”

Demir Barlas, Site Editor

After a long period of official silence on matters related to certification, SAP finally made some things clear to SearchSAP in a recent podcast. Here are the big takeaways:

*According to an internal SAP survey, 82 percent of hiring managers find SAP certification to be important or very important when making a hiring decision.

*if you’re going to invest in certification, invest in SAP’s own three-tiered certification offering, which is the only official, SAP-recognized certification offering in the marketplace. Lots of third parties currently offer SAP ‘certification,’ but SAP is going to be more aggressive about regulating these kinds of claims.

*According to SAP’s tracking of its 120,000 certified consultants, certification is most important at the early stages of an SAP career, but fades in importance later on. It is in response to this that SAP offers a ‘master’ tier of certification to recognize and reward senior-level consultants.

*SAP’s certification seeks to encourage and enable lifelong learning. It is part of the process of becoming a better SAP consultant. Thus, certification is not an end but a means.

It’s human nature to be afraid of open-ended processes. The biggest problem in the SAP careers marketplace is the skills shortage, which is itself a function not just of a manpower shortage but of a conniving attitude to SAP credentials. On many SAP job boards, it isn’t unusual to learn of SAP newcomers attempting to cheat on their interviews, inflating their experience, or otherwise misrepresenting their skills. We’ve long maintained that SAP has to take the lead in addressing this problem, and the SAP certification podcast indicates that it is very much on Walldorf’s mind.

Demir Barlas, Site Editor

Anheuser-Busch has agreed to a $52 billion takeover offer from Belgian beer company InBev. The deal will create the world’s largest beer company and generate plenty of possibilities in the SAP domain, as both companies are SAP customers. Anheuser-Busch runs SAP online procurement and supply/demand chain applications (the BudNet portal tracks distributor sales in order to give Anheuser-Busch an almost real-time picture of demand) as part of its larger use of SAP for Consumer Products; Anheuser-Busch is also a Business Objects customer. InBev runs SAP CRM and HCM.

Since InBev and Anheuser-Busch don’t significantly overlap in terms of their use of SAP, there’s a clear opportunity here for InBev to take over (and, indeed, globalize) the SAP software that Anheuser-Busch has successfully implemented in the U.S. Meanwhile, InBev could export its SAP CRM and HCM instances to Anheuser-Busch’s operations.

It’s rare for two large companies in the same space to have such different SAP footprints, but in this case there’s a lot of upside for InBev. The combined entity will have a comprehensive, non-overlapping portfolio of SAP resources that could be very valuable in improving global sales and execution processes.

Demir Barlas, Site Editor

Menasha, a packaging company in Wisconsin, installed SAP R/3 in 1995. Some media reports estimate that the project cost roughly $23 million, including $5 million for a license, and over $16 million in expenses incurred as a result of paying SAP, Deloitte, and other consultants to modify the R/3 system; documents filed with the Wisconsin Court of Appeals indicate that the total cost was over $46 million. Whatever the case, Menasha reportedly made 3,000 changes to the SAP software after purchase.

Menasha paid Wisconsin over $342,000 in sales tax for the SAP transaction but argued that, because the system was so heavily modified, sales tax was not in fact owed on it (state tax codes typically levy tax on out-of-the-box software purchased by businesses, which is counted as tangible property under the law, but not on customized software). After thirteen years of litigation, the Wisconsin Supreme Court agreed with Menasha and ruled that the state could not collect sales tax on customized software. This has profound implications for Wisconsin, which will now have to pay back $265 million to businesses who have paid such sales tax over the years. SAP and other enterprise applications customers in Wisconsin who have modified their systems should anticipate receiving these sales tax refunds soon. The ruling brings Wisconsin into line with other states whose tax codes forbid taxation of modified software.

One pertinent question raised by the ruling is why sales tax is collected on enterprise software at all. True enterprise software is always modified, and not in any trivial way; as in Menasha’s case, it is the rule rather than the exception for consultants, integrators, and other providers of value-added services to modify enterprise software for business use. Logically, then, enterprise software should only be taxed as tangible property when such value-added services providers are not present and the software is truly out-of-the-box.

The ruling in Menasha’s case should encourage all U.S.-based SAP, Oracle, and other enterprise applications users to aggressively challenge their state department of revenue’s procedures. Under the letter of the law, there is no such thing as non-modified enterprise software, so why not attempt to recoup all sales taxes paid on such software?

Demir Barlas, Site Editor

AMR Research has just released its CRM market analysis of 2007. There are plenty of interesting facts in the report, starting with the growth of the market. CRM revenue grew by a gaudy 12 percent in 2007, which AMR points out is “the strongest year-over-year growth for the segment since 2000.”

Here are the leading CRM vendors, with their 2007 total revenue and revenue growth rate:

1. SAP $2.7 billion (20%)

2. Oracle $1.9 billion (39%)

3. Salesforce.com $749 million (51%)

4. Cegidim Dendrite $602 million (82%)

5. Amdocs $522 million (14%)

6. Aspect $480 million (-2%)

7. Verint Witness Actionable Solutions $395 million (78%)

8. Microsoft $360 million (39%)

9. SAS $323 million (34%)

10. Avaya $267 million (2%)

The most impressive organic growth rate was posted by perennial SAP heckler Salesforce.com, but SAP’s much larger revenue numbers give it the last laugh. Given how late SAP entered the CRM market, it is no mean achievement. Siebel (later acquired by Oracle) had a head start of several years whereas Salesforce.com cornered the market on buzz, but SAP has demonstrated that it can dominate any segment of enterprise applications seemingly at will.

Something else to consider is that, of the top three CRM vendors, SAP has a possible edge in terms of global reach. Given SAP’s recent growth numbers in India and strong sales and development and footholds across Asia, for example, it seems likely that SAP CRM can crack the huge Indian and Chinese markets in advance of the other majors. If so, this would give SAP a continuing lead in CRM.

It bears repeating that, although these numbers might draw a ho-hum from people who are accustomed to thinking of SAP as a leader in various enterprise applications segments, they are all the more remarkable given the state of the marketplace in the early part of this decade. I still remember watching Tom Siebel in Los Angeles about five years ago arguing that Siebel’s CRM revenue would eclipse SAP’s total revenue by the 2010s, and a lot of audience members bought it. How much has changed since then!

Demir Barlas, Site Editor

We blogged earlier about the city of Burnaby, B.C.’s SAP project, which has sucked up millions of the Canadian town’s unbudgeted dollars due to project creep. That’s tragic for the citizens of Burnaby, who are paying for an expensive accounting system that may be more robust than their city needs, but there’s an undeniably comic element in the proceedings.

Apparently, according to journalist Brooke Larsen of BurnabyNow, Burnaby paid $100,000 for a report defending its decision to go with SAP. The report, which was provided by APT International Business Sciences (an outfit that, as of press time, had a placeholder Web site dominated by an ill-advised image of a burning tower), failed to discuss ROI and seemed instead to be a fig leaf for the city’s increasingly unjustifiable decision. The fact that the report was based exclusively on interviews of Burnaby city officials and workers was another embarrassing factor; surely there should have been input from outside authorities–including Telus, the systems integrator who pulled out of the project?

Burnaby must be rolling in wealth to pay $100,000 for fluff reports that would have been overpriced at $100. Thankfully for city government, the age of civic responsibility, or indeed basic awareness, is long dead; apathetic tax-payers would probably shrug their shoulders even if Burnaby decided to hold a public bonfire of tax revenues.

Demir Barlas, Site Editor

SAP is celebrating July with an executive shakeup. As of today, the SAP Executive Board has appointed the following new members:

Erwin Gunst: Gunst, formerly president of SAP’s EMEA division, is now COO as well as an Executive Board Member.

Bill McDermott: McDermott, formerly the president of SAP Americas, is now in charge of Global Field Operations.

John Schwarz: Schwarz, the CEO of Business Objects, is now on the Executive Board as well.

Jim Hagemann Snabe: Snabe heads up SAP’s new Business Solutions and Technology organization, which is in charge of the SAP Business Suite and SAP NetWeaver.

In addition to these Executive Board appointments, SAP has imported new managerial blood by appointing Jose Duarte as head of EMEA, replacing Gunst, and making Rodolpho Cardenuto president of SAP Latin America, replacing McDermott (who used to head up the Americas and APAC for SAP).

Demir Barlas, Site Editor

Oracle wants as much as $1 billion from SAP for SAP subsidiary TomorrowNow’s alleged theft of Oracle support documents and other illegally downloaded intellectual property (IP). As the legal clash nears — it’ll be 2010 before you know it — Oracle and SAP’s lawyers are pushing hard to frame the narrative that the courts will hear. Now that Oracle has finally put the question of damages on the table, it will have uphill work claiming $1b. After all, it hasn’t been claimed — yet — that SAP made off with the secret formula to Coca-Cola.

That’s not to say that Oracle has no case, or that its complaints aren’t meritorious, but $1b is a lot of money (although, admittedly, much less than it used to be). Oracle’s lawyers are taking a fascinating approach to make the argument for such large damages. Oracle’s latest joint discovery filing claims that this case is not merely about illegal downloads but about “the rules of fair play” between the two companies. Violating these rules clearly sounds more egregious than making off with some support documents. Furthermore, Oracle wants to draw the tenuous link between a violation of these rules of fair play and the success of SAP’s Fair Passage program, in which customers of PeopleSoft (the enterprise applications company for which Oracle launched a successful hostile takeover bid three years ago) were encouraged to come to SAP instead of waiting to see how they would be treated after Oracle acquired PeopleSoft.

Oracle wants SAP to disclose information on how important TomorrowNow was to the acquisition of (roughly 800) Safe Passage customers. The insinuation is that TomorrowNow was a strong factor in the loss of all of these customers, many of whom were concerned that Oracle would not provide adequate support for, and/or development of, PeopleSoft products after the takeover. Once TomorrowNow drove a wedge between Oracle and its prospective PeopleSoft customers, SAP was more able to convert many of these customers to its own products.

Of course, the trick here will be to demonstrate that TomorrowNow’s illegal downloads, rather than the fear and uncertainty circulating within the PeopleSoft and J.D. Edwards customer bases three years ago, were responsible for the success of Safe Passage. SAP’s lawyers should be able to create reasonable doubt around this connection. Most Safe Passage customers were trying to escape to a stable, supported platform; how many of them were merely choosing between support organizations? TomorrowNow was always a stepping stone; sure, it got SAP into a lot of deals, but there would have been a “safe passage” movement even if SAP hadn’t pushed for one.

Finally, the whole question of fair play is a hypocritical one for Oracle to raise. Was it fair for Oracle to begin a hostile takeover of PeopleSoft hours after PeopleSoft acquired J.D. Edwards? Is it fair for SAP to use its vast size and influence to get into no-bid deals? Balzac famously claimed that behind every great fortune is a crime, and, at its highest levels, the enterprise applications business is just as dirty as any other high-stakes industry. TomorrowNow may indeed have broken the law, and should be punished if this is the case, but $1b is ridiculous and, more importantly, legally unsupportable. Oracle’s fair play argument, and the logical elision by which TomorrowNow is tied to Safe Passage, just won’t cut it.

Demir Barlas, Site Editor

SAP is paying fellow enterprise applications company i2 $83.3 million to settle a patent dispute. In 2006, i2 had accused SAP of infringing on seven i2 patents, including patents for “an extensible model network representation system for process planning” as well as a “method for managing available to promised product (ATP).”

Earlier this month, JMP Securities analyst Patrick Walravens had predicted that damages could have been as high as $500 million, so perhaps SAP got the best of the settlement. While the full terms of the settlement were not disclosed, the companies have agreed to dismiss pending legal actions and to cross-license the patents in question.

In an indication of how far the company has fallen since its glory days a decade ago, AP described i2 as an “inventory management software company.” i2 is in fact a supply chain software company, although the business media appears to have forgotten.

With the patent issue out of the way, it is time for someone — meaning, effectively, either Oracle or SAP — to buy i2. Supply chain management long ago ceased to be a popular standalone domain, and is increasingly dominated by the two enterprise applications giants, who can bundle the functionality in an integrated suite. The other option for i2 would be to liquidate its assets.

Someone associated with i2 is no doubt anxious to get the ball rolling, judging by the rapid acceptance of what could be a lowball settlement. Whatever happens, get ready to say goodbye to a company that, not so long ago, was an analyst and investor darling while SAP was accused of being a dinosaur. Sadly, the Dallas-area i2 is doomed to being remembered for being chewed out by Nike CEO Phil Knight (”This is what we get for our $400 million?”), but its wealth of supply chain IP is still a valuable asset.

Demir Barlas, Site Editor