SAP takes Oracle Battle into the Cloud

Competitive rivalry between IT services giants SAP and Oracle continues with efforts to develop Cloud Computing projects

SAP and Oracle are by-words for project-driven innovation. Their rivalry is shown in the account of their interest in Cloud computing.

According to a review article in Bloombergs [4th Dec 2011], SAP has agreed to buy California-based SuccessFactors Inc. for $3.4 billion in cash to catch up with Oracle in the cloud-computing market.

Internal growth was favoured by former SAP chief

According to Bloombergs:

SAP AG’s then-chief Leo Apotheker told investors in 2009 that the German company’s homegrown technology was “significantly better” than that of Oracle Corp. (ORCL), which had “not done a good job with acquisitions.”

The shift to an acquisitions strategy

However, Apotheker was forced to leave three months later and his successors, co-CEOs Bill McDermott and Jim Hagemann Snabe, moved to an acquisitions strategy. The SuccessFactors bid is their second major purchase.

Make or buy

Business School students will recognise one of the most-widely faced innovation dilemma, ‘make or buy’. The fastest growing hi-tech pioneers tend to be concentrated first on ‘making’. For Microsoft, Google, Facebook, buying is a signal of a creative growth company. Buying market share for such companies tends to be been espoused later as a means of changing and adjusting to market conditions they themselves helped to create.

SAP ‘learning through customers’

One of the consequences of pioneering though innovating is that the learning takes place often painfully as customers get to work with newer versions of the product. This has become part of the history of IT product innovations and systems from the time Microsoft was no more than an infant.

A not atypical example is one I came across some years ago in a small but innovative food manufacturing business. In switching to a SAP-type system for managing its finances, it came within hours of complete meltdown after a systems failure. The concept of working with the customer in this way is described in far more positive terms in the video clip here

“What took you so long?”

McDermott and Snabe have changed tack at the largest maker of business-management software to do a better job meeting demand for new technologies, such as cloud computing, real-time analytics and mobile applications.

The SuccessFactors deal shows SAP’s previous go-it-alone approach to the cloud was lacking, said Thomas Otter, a vice president at Gartner Inc.
“My first reaction was: what took you so long?” Otter said in a phone interview from Heidelberg, Germany, less than 50 miles away from SAP’s headquarters in Walldorf. “This means a fundamental shift in terms of their cloud strategy, which has been rather slow to get off the ground. This is a tacit admission that their cloud strategy was a failure.”

The search for quality acquisitions

In Business Schools, the issue of searching for strategic partnerships gets extensive treatments. A touching faith in the models of Michael Porter sometimes overlooks the more intuitive side of the process.

According to Bloombergs again:

McDermott and SuccessFactors CEO Lars Dalgaard first met on Sept. 27 at SuccessFactors’s suburban office in San Mateo, the executives said. McDermott said he “personally” evaluated a number of cloud computing competitors — including having dinners with their executives — before deciding to buy SuccessFactors. Competing with Oracle wasn’t a driving factor in the deal, he said. One asset SAP gains is Dalgaard himself.

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14 Responses to SAP takes Oracle Battle into the Cloud

  1. Paul Hinks says:

    Hi Tudor,

    There’s a lot in this latest blog that’s of personal interest to me…
    I see cloud computing and cloud services as an evolving computing paradigm. I do believe cloud computing will be reflected on in the future as a definitive computing era – as singer songwriter Dylan proclaimed: The Times They Are a-Changin’ – so it makes sense to me that organisations such as SAP and Oracle are aligning their strategies to the cloud.

    ‘The cloud’ is an opportunity which major vendors cannot afford to miss out on. The risk is that their current capabilities and services don’t map well to the evolving cloud ‘vision’. Organisations can attempt to grow their capabilities organically, or take the alternative route of partnership, or even acquisition (make or buy). As you highlight, there’s evidence apparent in SAP’s acquisition of SuccessFactors (founded in 2001), that IT vendors are making strategic acquisitions to strengthen their cloud position.

    The opinions & subsequent strategy of various IT leaders are interesting. On a fairly regular basis they seem to switch horses so to speak. The quote from Leo Apotheker 2009 is interesting and indicates that Leo was favouring an organic growth strategy for SAP while he was their CEO – he challenges Oracle’s acquisition track record. Interesting then that when Leo was CEO of HP (Sept 2010- Sept 2011) that HP acquired Palm for $3.4billion and then authorised the $11billion acquisition of Autonomy. A fast track to growth? Perhaps, except Palm’s portfolio of mobile phones and webOS now appears to be consigned to HP’s recycle bin; the Autonomy acquisition was seen as expensive.

    Another observation is that IT leadership has been through an interesting cycle over the past couple of years with the corporate IT heavyweights doing the merry-go-round. Mr Apotheker left SAP to join HP; Mark Hurd left HP to join Oracle. Mr Apotheker then left HP. It’s akin to football managers who resign from one club, receive a huge payoff, only to get re-hired by a rival club often facing the same challenges they faced at their previous club!

    (Back on topic) – I do see huge potential in cloud computing; I find it interesting how large IT vendors are lining up acquisitions – and that some creative young organisation are apparently able innovate faster and more efficiently than the industry giants. I believe we’ll see more & more businesses leverage cloud computing and yield the benefits associated with utility computing. Organisations that opt for Cloud computing to address their IT services provision are answering their own ‘make/buy’ dilemma. I do see opportunities for organisations to yield greater IT effectiveness and efficiency through cloud technologies.

    I’d be very interested in discussing thoughts & comments from other LWD readers on this particular thread ..

    kind regards,
    Paul

  2. Adrian Gheorghiu says:

    To make or To buy, and if buy then who to buy and when to buy?

    At a glance it looks promising and indeed SAP needed to strengthen the Cloud area.

    Analysis of the corporate cultures is key at this stage – company integration is a mamut task and requires attention. CEO’s profile and company timelines do tell a lot about the company and where are the attracting/repelling points of integrating efficiently the operations.

    SuccesFactors CEO Lars Dalgaard is Danish, started the company in the US, his leadership and management culture have the flavours of the old world mixed with the innovation push/aggressiveness of the US business. Background from Unilever and Novartis provide management track record in a truly global environment so he’s expected to know how to handle the challenges ahead. Lars Dalgaard profile: (online) http://www.successfactors.com/company/management/lars-dalgaard

    SAP has a strong german culture – quality and quality again and then punctuality. So as we can see there are some common grounds that could lead to a good mariage but it is still early to say.

    However, it is too early to say how much of a difference the acquisition is going to strengthen SAP position in the battle for getting a better share of the cloud market/customers. I can see that SuccessFactor brings to the table a portfolio of products supporting analytics and insight but would challenge the amount of potential product/portfolio overlap between the two of them and how succesfactors is going to differentiate SAP on the market.

    Ability to leverage each other services efficiently is going to be key to achieve a reasonable bottom line and driving top line will be a challenge with a competitor like Oracle who acquired SUN few years ago and have the technology, the know how and the true global service required by the service integrators and the customers today.

    Rightly or wrongly my perception is that Larry Ellison doesn’t take prisoners, and with SAPs potentially too expensive acquisition of SuccesFactor reducing the capital reserves and making SAP more exposed to harm, we could see soon some interesting and agressive moves from Oracle: Oracle decides to take SAP back to court (online) http://www.mercurynews.com/60-second-business-break/ci_19913511

    Cloud is now an expected feature from any decent software product / service supplier. Whether to buy or to build is specific to the products/services, but also ambition and available capital and the market conditions. If competing to Oracle is not key on the agenda sounds too right but is that accurate? If accurate I think the price was too high for this acquisition to just get on the cloud.

  3. Thanks Paul,

    How does all this influence effective leadership styles, for example?

  4. Paul Hinks says:

    Hi Tudor –

    I’m thinking about power and control maps, the challenges of acquiring an organisation and aligning values & goals.

    I’m thinking about aspects of relations-oriented behaviour – how leaders are perceived by their workforce; how they increase mutual trust with their workforce – perhaps to assist with the acquisition process – (‘supportive leadership’, ‘employee-orientated leadership’).

    How will the SucessFactor employees feel about the acquisition?

    Do you have any additional thoughts?

  5. Thinking that you and Adrian have the basis of a good collaboration and a deep grasp of specifics around this case. The soft skills are hard as someone must have said.

    I’m not sure I’ve got much of a picture of the various chess pieces on the board not to mention what moves (strategies) are being considered.

    I need some more ‘map-reading’ about the chances of firms who depart from their core skills too radically, and then ‘map testing’ of the specifics of this case. (Where are my strategy gurus when needed? I’ll see if I can rouse one or two from their slumbers…)

  6. Dear Tudor,

    I must confess that this looks to me like the battle of two dinosaurs who haven’t noticed the asteroid that is about to knock them out, along with the clients who have spent millions with these guys, freezing their business processes to fit their ERP straitjackets.

    I love the idea that McDermott evaluated which Cloud company to buy using the highly sophisticated method of taking their directors out to dinner – sheer genius!

    Regards,
    Trevor

  7. Thanks Trevor,

    Great that Alex grabbed your attention on this.

    As an [near] innocent amateur astronomer, I was wondering at the nature of the asteroid from your readings?

    best wishes

    Tudor

  8. Dear Tudor,

    As the rate of change in the environment speeds up, businesses that cannot adapt fast enough will collapse. Spending a lot of money on ERP systems is equivalent to investing in crippling yourself with a dinosaur nervous system, incapable of coping with rapid change.

    I see no evidence that either Oracle or SAP have anything to offer to prepare corporations for the speed of change they will need to cope with. They both appear to be investing massive sums in developing faster ways to do all the wrong things (e.g. SAP’s HANA).

    Organisations that want to adapt will need the equivalent of a mid-brain and a neo-cortex, to sit on top of their ERP reptilian brain.

    We are working on it :-)

    Regards,
    Trevor

  9. Paul Hinks says:

    T-rex & co may not have had their last meal just yet – but I do share your view – cloud will accelerate change & increase flexibility for firms.

    SAP, Oracle (& others) need to adapt.

    Splashing a few billion around over lunch sounds like a nice way to pass time though. :)

  10. Adrian Gheorghiu says:

    Dear all,

    I wish we all could afford splashing billions over dinner without creating drama. The splashing reminds of Fred Goodwin / RBS story from not so long ago. I need to find a good realm in second life to try splashing, learn how it feels and then doing it again in real life.

    Also, going back a bit, does anybody remember the internet bubble late 90s? That bursted and with it many shareholders lost every penny. That happened not because internet was bad but the investors, marketing and strategists miscalculated the size and timing for demand.

    A parentesis

    The regulators should require business to do mergers and acquisitions in second life! We could create the MBS stream/course and artificial intelligence developed capability for testing end to end the mergers and acquisitions, from simulating preconditions and signalling plus 2 years strategy and implementation roadmap. The chosen ones among us could lead the change and transformation according to the scripts coming out of the busy printers, and adjusting the small cog wheels to reflect incrementally the realities recorded during the change. There’s great amount expertise and knowledge at MBS, there is significant engagement between MBS and Business globally plus today (cloud) technology supports the computing power needed to set this up and simulate practically endless number of scenarios and outcomes. But then we wouldn’t write blogs!

    Back to the SAP, Oracle and T-REX

    With the wider product/service portfolio there is a niche where SAP after the acquisition can be very successful but the market space and time to achieve that is getting narrower every day.

    What happened: SAP has bought SuccessFactors at more than 50% of its book value. Creative leadership is strengthen at SAP now, Mr Lars Dalgaard demonstrated sense for profitable innovation and creativity being probably key assets valued at SAP.

    In response Oracle, Larry Ellison is revisiting previous position and adjusts to the new market conditions by strengthening Oracle portfolio with cloud enabled human capital management capabilities, Oracle announces acquisition of Taleo paying only 18% over Taleo’s share price at close on Wednesday.
    http://www.federalnewsradio.com/?nid=616&sid=2740629

    So what Mr Larry said in the past about the cloud has not affected his ability to recognise that growth and diversification in the cloud is imperative to retain Oracle market share, I quote the source above:

    “Oracle’s outspoken CEO, Larry Ellison, had cast doubts about whether cloud computing would produce enough profits to justify heavy investments needed. At a shareholders meeting in 2008, Ellison called it “ludicrous … that cloud computing is taking over the world.”

    Again, even a T-Rex has noted the cloud, with the lessons learned from the internet bubble, the time and size of action has been delayed until the clear loss of market share was real.

    So yes, I agree with Mr Paul and Mr Trevor that the T-Rex needs to get smarter and more agile – but I can see clear signs they at least understand this and try adjusting by eating the chimps:) indeed, diet may not be sufficient and they’ll need to invest in their own R&D and strategy to develop a new cloud fit cortex.

  11. Paul Hinks says:

    Hi Adrian –

    Another comprehensive post :)

    Leaders who take their corporate credit card to lunch and spend a few billion aren’t the ones to watch in my mind.

    It’s the true industry visionary’s that provide inspiration to me, for example, John McCarthy made several noted contributions to computing and is actually referenced as an early visionary of cloud computing (http://tinyurl.com/6bfjfv) – another creative mastermind is of course the late Steve Jobs who delivered a legacy that’s likely to impress & inspire us for years to come.

    There are many themes in this blog that have sparked my interest, not least the references to asteroids, dinosaurs, chimps and T-Rex – not entirely expected in a blog about Oracle versus SAP – but it all helps make interesting & humorous reading :):)

  12. At times I am energized by the wit and wisdom of LWD subscribers.

    Thanks all.

    I just had a flash-back to signs that would light up during a baseball game (think I saw them at the Cubs some years ago).

    The first shouted: “THE CROWD’S GONE WILD”
    The second one: “THE CROWD’S OUTA CONTROL”

    Which somehow seems in the spirit of this thread.

  13. Adrian Gheorghiu says:

    Hi Tudor, Paul and Global Colleagues

    Posting to this blog provides a great opportunity to sharpen the (English) pen in a supportive and non belligerent environment

    If I were 20 I’d say I know what I want to do when I grow up:-)

  14. samer al salhi says:

    it is very interesting seeing how technology affecting decision making and leadership style , the concept of make or buy still the core concept to be examined but the technology and its emergence and the factor of time became of great importance, that if not taken into consideration the organisation in question might have sever negative issues later and here comes the vision of the leader whom if being a strategic leader and of sharp vision might get the company to a promising future which might not be clear for “conventional leaders”

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