Medium is the message

Targeting the small and medium-sized enterprise (SME) market sector is a vital part of our strategy, claims Eric Duffaut, executive vice president of SAP EMEA.

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By  Diana Milne Published  December 3, 2006

|~|90Duffautleadbody.jpg|~|There are threats but opportunities as well for SMEs because of globalisation, believes SAP’s Duffaut.|~|Having traditionally been regarded as a company that provides solutions for large enterprises, SAP has now turned its sights to the small to medium-sized enterprise (SME) — an area where it believes there are lucrative growth opportunities. At Gitex 2006 the firm showed its commitment to the SME sector by launching the SAP Best Practices Baseline Package —a solution specially tailored to meet the needs of SMEs operating in the GCC countries. This is designed specifically to provide SMEs with rapid deployment and fast return on investment — and will enable them to automate and connect their core operations, including sales, production planning, asset management and procurement. Globalisation is the key driver behind growth in the SME segment according to Eric Duffaut, who is executive vice president for SAP AG’s Europe, Middle East and Africa (EMEA) operations excluding Germany (which, as SAP’s traditional home-base, is managed separately). Duffaut believes smaller companies are being forced to adopt increasingly sophisticated IT solutions to compete against the large players in the global marketplace. He says SAP has an aggressive strategy planned to target SMEs — one that it hopes will put further distance between it and its nearest competitor Oracle. IT Weekly gets Duffaut to explain why SAP is so committed to serving SME customers and why it sees this sector as such an important one to focus on. Having built up your reputation as an enterprise software firm, why is the mid-market and SME space now a key focus for SAP? With globalisation going on there are challenges and opportunities for SMEs like never before. This is a very challenging period for them — either they take this as an opportunity and really build on it and surf on the wave, or they are going to be killed by the wave. There are threats but opportunities as well. The first threat is that suddenly SMEs, local SMEs, have to compete against larger players who are coming into the market and they face a new kind of competition. They are also dealing with bigger and bigger customers. Many of the SME companies we are seeing in different countries are now more and more dependent on large customers. There are SMEs who are dependent on 80% of their business being done with very large companies. But there are also opportunities for them from this open world. They have an opportunity to grab new market share by going out of their frontier for instance. And technology becomes an equaliser in terms of the way they can compete in this market. How can IT solutions help SMEs to compete in this global market? IT has a critical role to play and one of our goals is to inform our customers and convey to our customers how critical IT is in the struggle for growth overall. There is clearly at the moment a lot of SMEs who are re-thinking their IT strategy in line with their business strategy to reach this kind of ideal growth to continue to survive and build a future in the market. SMEs really do see IT as an element which will help them to better compete in the market and to grab new opportunity but also to keep customer intimacy. They want to reach a certain level of growth in order to be able to compete against these larger companies and to be able to grab market share in new market segments. But to do so, if they continue to grow they might also lose what makes their soul. What I mean by what makes their soul is the customer intimacy. When you don’t have a lot of customers you have a certain customer intimacy, which you might lose when you grow — that includes the flexibility and the pricing they have which gives them a competitive advantage. SAP provides these companies with a system, which can continue to give them the flexibility they now have. How do you aim to grow your market share in the SME space? The first thing we have done is to adapt our go-to-market model: we want to grow and enable our channel, this is something which is very important. We have put in place what we call a hybrid sales model — this means a combination of direct and indirect sales. We have put in a lot of effort to strengthen the channel that we had before —both in terms of capability and competency. We are recruiting partners as we speak and we will continue to do so in 2007 and even accelerate. We have also created telesales capability to increase our reach into the EMEA region. In addition we have created a telesales organisation to support our partners, to increase demand and to reach more customers at an affordable cost. In terms of products, we have launched a packaged solution, which will be affordable for mid-market companies and that is developed specifically for the Middle East. What unique needs do SMEs have when it comes to enterprise resource planning (ERP) type solutions? Their needs are exactly the same as those of large companies. The only differences are —they are smaller, they have less money, and they don’t have a big IT organisation. But if you think about functionality – they are competing with big players, not only with small companies anymore. If they want to compete they need to use the same kind of IT system. So on a functionality level their need is the same. The problem is they don’t have the money that large companies have — so they can’t spend millions of dollars and months and years to implement the system. So what we’re going to bring to the market is not something with different functionalities, or where the functionality is reduced and hence the benefits are reduced. We are going to provide the same functionality but packaged and ready to be implemented in a short time frame and at an affordable cost.||**|||~|90Duffaut2body.jpg|~|Roughly 45% of revenue for SAP Arabia is coming from the SME sector and this share is growing, claims Duffaut.|~|How strong is the mid-market opportunity for SAP here in the Middle East? In SAP Arabia, 45% of revenue — more or less — is coming from what we call small or medium-sized enterprises and this share is growing. We have not finished 2006 but our forecast for the total year is that this share is growing and will continue to grow. Most of the market here, if you look at it, is SME driven. The same applies in Europe — most of the market is SME there as well. I think that the share of 45% that we reached here in 2005 is just the beginning. Have you got any specific growth targets for SME in the region? [The targets are] aggressive —we are discussing this at the moment. The investment that we will make both globally and in the region will be very much geared towards the SME market. We have a strong position in the large enterprise market and we believe that we will strengthen this position in the future. But this is our core DNA — this is what we have been doing for 30 years and pretty well. And this is what SAP Arabia has been doing also pretty well for several years. Where we know that we still have a real big market share to grab is in the SME segment. Are there any specific things about this region that make it unique compared to say, the SME sector in Europe? No, I don’t think so. An SME company remains an SME company and the challenge remains more or less the same. I think that the difference is that the market is even more booming here than it is in Western Europe — which makes the opportunity even greater for us. But the way we are going to go to market will be very similar in the Middle East to other parts of the world. How important for SAP is the Middle East as a market? Again, it is an important market segment today. It should be an even more important market — if you look at the growth rate we all know that the business in the Middle East is growing even faster than Western Europe. The share that the Middle East represents for my region should continue to grow. And starting next year in 2007 we expect the Middle East to represent more business than it has in the past. Again, because we have this booming economy here and we need to make sure that we take this opportunity. How strong is SAP currently in the Middle East? According to the IDC we now have a 31.1% market share and the number two is at 23.2%. If you compare that to a year ago we have taken approximately 2% market share which I think is significant. Our competitors are starting to struggle. I think that we will continue to gain market share and hopefully even faster than what we have done in 2005. Again our strategy to gain market share in the SME sector will support that growth overall. But we will continue also to lead in the large enterprise sector — this is critical for us. There are now some markets where we know we are doing better than others. This is normal — everyone has areas of improvement. We are conscious of that and this is why I am confident that once we have addressed [those areas of improvement] we can do even better. What obstacles, if any, might SAP face to its progress this region? Well, of course we have competitors and you can say that they are a barrier to [our] growth. But I think really what we have demonstrated so far with the products we have launched, with the go-to-market that we have and with the value proposition that we have for our customers and our partners is that we are equipped to win. So I think our biggest threat could be the quality of execution which means that our success depends very much on us. And it’s a great opportunity. We have the right products, the people, the value proposition and the expertise. We just have to grab and execute that properly. If we execute according to the plan, I’m pretty confident that we will continue to take market share. What do you plan to do to gain market share over your competitors? I think that there are two things and we have followed them indirectly or directly. Number one: in the large enterprise sector I think our industry expertise is clearly a key difference here compared to our competitors. I think we are winning every time through the industry solutions we have here, which benefit from the 30 years worth of expertise we have in the different industries. The best practices we have learnt with our customers are another key element. We never win on price against competition. And if you don’t win on price that means that you bring a different level of value to what the others do. Another factor is our ability to jump after this huge opportunity in the SME segment. Do you think that your regional partner, SAP Arabia, has been working hard enough in the region to secure market share? What we are seeing here is definitely the same kind of trend as we saw in other parts of the world and in other parts of the EMEA region a few years ago. I think that we are very much focusing on the large enterprise segment and if you look at the market share that we have here we are ahead of our competitors. I think that we can be even better and make a bigger gap between us and the number two by getting market share in the SME segment. So we can do better — of course we can, otherwise it would be a boring life. We are here to do better, we have very ambitious challenges that we share with SAP Arabia here and we want to execute on them. What were you hoping to achieve at this year’s Gitex? For me the key element was really to demonstrate at Gitex that we have solutions for customers of all sizes. The launch of our packaged solution is critical to our success in the SME segment. And we wanted to demonstrate that we are now capable of addressing this opportunity and providing these small to medium enterprises with the system they need to continue to grow in this market and in this region. We wanted also to take the recent Gitex event as an opportunity to continue our efforts in terms of partner recruitment.||**||

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