Blue Ocean Strategy – SAP AG Partnership Strategy fuels growth for company

In the book titled “Blue Ocean Strategy: How to create Uncontested Market Space and Make Competition Irrelevant” authors W. Chan Kim and Renée Mauborgne mention SAP AG Partnership Strategy.  The authors said, “By partnering with Oracle, SAP saved hundreds of millions if not billions of dollars in development costs and got a world-class central database, namely Oracle’s, which sits at the heart of SAP’s core products R/2 and R/3. SAP went a step further and also partnered with leading consulting firms, such as Capgemini and Accenture, to gain a global sales force overnight at no extra cost. Whereas Oracle had the fixed costs of a much smaller sales force on its balance sheet, SAP was able to leverage Capgemini’s and Accenture’s strong global networks to reach SAP’s target customers, with no cost implication to the company.” SAP AG has grown from 2003 revenues of US$ 8.83 billion to 2012 revenues of US$ 19.91 billion (estimated). SAP AG Blue Ocean Strategy of partnering with companies of all sizes like Large businesses like IBM, Accenture, Capgemeni, including Indian majors like TCS, Infosys, Wipro, HCL Technologies and small medium players have helped the company to push its products and services deeper into the market at a faster pace.

SAP also works closely with partners on all fronts not only to push sales but also to develop new products and introducing them to market. One of the major factors for SAP success in the early 1990s was because of the company closely working with systems integrators and allowing the System Integrators make money and margins from implementing SAP in the organizations. But company lost momentum around 2005 and sold only 7% of products through channel partners where as the industry average for enterprise software companies was around 40%. The company reworked its channel partner strategy and could increase channel partner sales to 20%. According to a Forbes article titled “How SAP is Betting Its Growth on Partnerships”, SAP CEO Bill McDermott highlighted the central role of expanding the partner channel in comments on the 2011 Q2 earnings, when SAP sold 25% of its revenue through channels. “Our ever expanding partner ecosystem and multi-channel go-to-market is core to our growth strategy,” McDermott said. Eric Duffaut, President SAP Global Ecosystem and Channels also said that SAP expanded its program for co-development and co-innovation processes which are essential to the consumerization of SAP and the true power of SAP platforms will be revealed by getting as many partners involved in envisioning and developing solutions.

In January 2011, has completed a corporate reorganization, including a restructuring of its channel operations that will result in the company relying on the channel for all sales to small and midsize customers and at least double the channel's share of SAP sales by 2015. Earlier SAP's channel operations were a complex matrix of the company's indirect sales and SME (small and midsize enterprise) operations. After this reorganization, Eric Duffaut was appointed as president of global ecosystem and channels and he said Partnering is critical to the strategy of SAP and to drive co-innovation with SAP partners to better help them cover markets, increase customer touch points and act as a force multiplier for SAP. SAP will work closely with channel partners to target small and medium enterprises and channel will account for 30-40% of total sales by 2015 form 2010 levels of 15%. For SAP, channel partners are essential for its future growth and it has to rely on them particularly for SME sales and also assist with some sales to large customers in specific regions or vertical industries where a solution provider can bring specific expertise which SAP refers as targeted opportunities.

SAP AG is a comparatively small player in the channel with about 10,000 partners worldwide, including about 3,000 VARs, with the remainder being comprised of systems integrators, service providers and ISVs. That's in sharp contrast to competitors like Oracle, which has about 20,000 channel partners worldwide, and Microsoft's stable of more than 500,000 partners worldwide. SAP also is putting more emphasis on leveraging the channel to help it boost sales in what the company has identified as its key growth areas: business analytics, mobile computing, data management and cloud computing. The channel ecosystem is an essential element of our growth strategy," said Co-CEO Bill McDermott. SAP blue ocean strategy of relying on channel partners for future sales is working well as is evident from the revenue growth the company has seen in the past few years and it is also able to improve its product and service offerings through co-innovation with partners.

According to Wikipedia, SAP partners include Global Services Partners with cross-industry multinational consulting capabilities, Global Software Partners providing integrated products that complement SAP Business Suite solutions and Global Technology Partners providing user companies with a wide range of products to support SAP technology, including vendors of hardware, database, storage systems, networks, and mobile computing technology. Solution extensions partners: this is a small number of companies which provide functionality that complements SAP solution capabilities. These enhancements fulfill high quality standards and are certified, sold and supported by SAP directly. SAP solutions for small businesses and midsize companies are delivered through its global partner network. In 2008, SAP signed SAP Global Service partnership with HCL Technologies, a $6 b technology service provider, headquartered in India. The SAP PartnerEdge program, SAP's partner program, offers a set of business enablement resources and program benefits to help partners including value added resellers (VARs) and independent software vendors (ISVs) are profitable and successful in implementing, selling, marketing, developing and delivering SAP solutions to a broad range of customers.

Discussion Points:

1. What should SAP AG do to improve their channel partner strategy?

2. SAP AG has fewer channel partners compared to its peers, how should they SAP increase number of partners? 

3. With changing business environment, what should SAP AG do to survive in the near future and long-term?