Cost-cutting phase is over — SAP CEO


27 Apr 2005

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COPENHAGEN: The days of using IT to strip out cost and inefficiency from the business are over; the focus now should be on using it to gain competitive advantage over rivals, Henning Kagermann said yesterday at Sapphire, SAP's global customer and media event in Copenhagen, Denmark.

The SAP CEO was referring to the situation in the early part of the decade where business leaders were prepared to invest in IT but only if it cut costs. “Back then, 90pc of IT budgets was spent on just running business operations and only 10pc was going on IT for innovation. Cost cutting is not enough anymore,” he insisted. “IT is about growing and investing for growth.”

According to Kagermann, although growth is “back on the agenda” enterprises are still operating in a very uncertain business climate. This means they cannot simply revert to the old 'business as usual' strategy of letting the business take its own course. “It is all about strategic flexibility; you have to be able to adjust your strategy to meet the unexpected,” he said.

Businesses therefore need an IT infrastructure that is equally flexible, said Kagermann, who noted that this was the driving vision behind SAP's four-year Enterprise Services Architecture strategy roadmap launched in 2003. “Flexibility and speed become design imperatives for promoting IT to a strategic weapon,” he asserted. The objective, he said, is to make software a “strategic lever” for businesses by embedding it in their business processes rather than be something they acquire separately. He described embedded software as the “driver of innovation” making products easier to use and integrate and often more secure as well.

“There is a new awareness among business leaders about the strategic importance of IT. That has changed fundamentally changed in the past two years,” said Kagermann.

The SAP boss further argued that software would have to be delivered much more rapidly in the future and that the ESA, based on NetWeaver, SAP's application integration or web services platform, would enable this to happen. Likening ESA to the Moore's Law for software, he said it would “bring greater productivity to the software industry” by allowing innovation to happen faster.

What was also driving SAP down the ESA road was shifting organisational models, Kagermann noted. Where once an IT infrastructure was contained within the four walls of an organisation, it could now encompass a number of large and small businesses all representing elements of an end-to-end business process. Kagermann said these “adaptive business networks” required software that could integrate different environments — something that could only be done by using a services-based approach.

By Brian Skelly