In Search Of FlexibilityIn Search Of Flexibility

SAP's empire was built on the multimillion-dollar, multiyear megaproject. While not quite ready to declare those projects gone forever, SAP CEO Henning Kagermann knows he can't depend on big-ticket contracts to get his company growing again.

"Our customers' experience has shown them that their industry environments are changing too rapidly to plan three- to five-year projects," Kagermann says. "They no longer want that complete blueprint for a one-step implementation but ask for it to be broken into manageable pieces."

SAP revealed one part of its strategy a year ago with the introduction of SAP NetWeaver, the vendor's integration, portal, Web-services, and application-server technology. "Architectures must be more flexible, with what we call open integration based on globally accepted standards, and that wasn't the case in the '90s," Kagermann says.

NetWeaver is an important technology to offer customers in a world where mega-application deployments are few and far between. Customers require phased implementations with a proven and efficient return.

Along with NetWeaver, the company's strategy for the future also revolves around its continuing focus on providing software tailored to vertical-industry needs. The experience SAP and its customers have compiled through the years lets customers derive immediate benefit from deploying technology proven to suit their specific needs, he says. That's "much cheaper than starting a greenfield project and doing all the planning yourself," Kagermann says.

A smaller number of business-technology executives will seek to gain a differentiated edge by implementing less proven but potentially more comprehensive and useful technologies, such as radio-frequency identification. "Those companies will want to implement new technology as early as possible to get a competitive advantage for the next two years or so," he says. Last month, SAP unveiled supply-chain applications built from the ground up with RFID capabilities.

Most typically, companies will have strategies that are based on using applications that support industry best practices and those that support innovative technology, he says.

The German software maker's 2003 revenue fell 5% to $8.9 billion from $9.4 billion the year before. For its fourth quarter ended Dec. 31, revenue was $2.8 billion, down 3% from $2.9 billion a year ago. A return to revenue growth for the company will be tied to even tighter relationships with its customers.

"When you speak to clients, they understand the importance of IT, and it's more important than ever to have a strategic partnership," Kagermann says. "We're having higher- and higher-level contact within these companies on a more regular basis to talk about our strategies and their strategies and see where they match. That tells me that IT has become an integral part of a business strategy."

Kagermann says he's pleased with SAP's market-share gains in relatively new areas for it, such as customer-relationship management. But the enterprise software market has become more competitive than ever, he says. Mergers and acquisitions have boiled the industry down to a small but extremely strong group of players, which has placed increased pressure on margins and on the demand for improved total-cost-of-ownership initiatives. "Everybody is looking for a lower cost of total ownership, and we have to have an answer that depends on the client, the industry, and region," Kagermann says.

The future for technology and IT jobs remains strong on a worldwide basis, he says. "Individuals with talent will always find a job," Kagermann says. "Technology and business will be a good place for young people to find growth opportunities."

As a German company with most of its workforce in Western Europe, SAP faces more legal restrictions about moving jobs offshore than American companies do. With new hires, however, SAP will expand its existing workforce in India, China, and Eastern Europe. "We're going to seek a healthy mix," he says. "This is becoming a mature market, but there remain many exciting things you can do to innovate."

Kagermann's excitement about the world extends to reading the latest studies and reports on mathematical advances and theories in physics. That's entertainment for the former lecturer in theoretical physics. "I always need something that is challenging, fascinating, and different," he says. "That way, there is no chance of burnout. I would get burned out if things got too boring, but there's very little chance of that happening."