It used to be that companies wanted to reach the big guys, Fortune 1000 companies, to secure huge deals for their products and services. Today, that philosophy has changed. Sure, people want to land the white whale that will inject large amounts of capital into their business. But they also want to have a stable client base that provides regular, predictable sales and won’t kill the business if one or two suddenly fail or stop doing business with your company.
Enterprise software and hardware giant SAP is no different. For SAP, making the move into the small and midsized enterprise space, otherwise known as SME, had more to do with spurring SAP’s growth than simply diversification — though that didn’t hurt.
Smart Business sat down with Kevin Gilroy, senior vice president, SAP Channels and Ecosystems, SAP Americas, to talk about SAP’s transformation and newly honed focus on the SME marketplace.
Kevin, how has SAP been targeting the SME space?
About 78 percent of our customers are in SME, so we’re a big player there. Our brand is certainly stronger in the enterprise and large enterprise space than it is in the SME, but we have a deep penetration in that space, and it’s been an important component of our strategy. Another is a fast-rocketing business analytics practice, along with an on-demand and mobility initiative.
Today, there’s a fast-growing channel ecosystem that is ramping up the channel partners that were in the program, and now we have 3,000 around the world, including 700 in North America, that are clamoring to get into the program. And, we’re going through a transformation to make this a step-function improvement. The transformation is around six pillars.
What are those pillars?
Pillar No. 1 is to amplify the brand in SME. The SAP brand is the 25th most powerful brand in the world in enterprise, but you get down into SME and the brand isn’t quite as well known. So we have a whole team working on building that brand.
The second pillar is around a complete re-engineering of the marketing organization within SME. We know that SME is not a one-on-one enterprise selling motion; it’s a one-to-many selling motion. That’s how you scale. It’s not about knocking on each door. Instead, you have to get the marketing machinery out there, so we renamed that team to be ‘revenue marketing,’ not to be confused with ‘brand marketing.’
Revenue marketing is building pipe and demand for our channel to grow the business. Now it’s analytically driven, has the art and science of marketing combined, predictable marketing and predictable analytics in place. I can go to the company executives and say, ‘If you pour this amount of money in the marketing machinery, here’s what comes out of the other side.’
And we will predict it well.
That’s a re-engineering for SME because we had a market into the Russell 2000, but now we’ve re-engineered it to go after everyone else and spur fast growth.
The third pillar is our ecosystem build-out. Our goal is to add 1,000 feet on the street in two years, within our channel base and new channel partners. Now, in addition to those 1,000 salespeople, there’s demo, pre-sales consulting, installation and maintenance people behind it. So it’s probably more like 5,000 people.
How are you measuring that timeline to achieve the goal?
I’m pretty metric-driven and we are already ahead of plan. We’ve added more than 150 feet on the street in the first 120 days (through the end of November 2010), and there’s a pipeline of people knocking on our door to join our program.
One thing of note is that 100 percent of new business in SME will be through the channel partners. We will not take a direct order in new business. So we’re building out that ecosystem quickly.
What about the other pillars?
The fourth pillar is operational excellence. It’s the experience team. The experience team’s goal is for end customers and partners to be delighted to consume SAP products. We want to make them easy to procure, easy to install, easy to enable and easy to use. It must be a delightful experience.
A doctor who is the CEO of a hospital in Texas said to me, ‘When I plug in my electric razor in the morning, Kevin, I don’t think about the power to the fuse box, to the fuse box to the pole, the pole to the high tension lines, the high tension lines to the power plant. It just works.’
Small, medium-sized business owners and operators, that’s how they think: I want my business analytics to work. I want my ERP system to be up and running and easy to install and easy to deliver. I want to procure it easy. I don’t want a 40-page lease document or finance document. I don’t want a 30-page maintenance document that I have to hire a lawyer or contract officer to understand.
It needs to be easy — one pagers, one-and-a-half pagers. The team teases me, but with everything we do now I say, ‘Is it SME-ized?’
So how do you make it easier?
Again, taking the leasing document. I talked to our CEO, Bill McDermott, about this. I told him I wanted the finance document to go from 20 pages to two pages. He said, ‘No. One page.’ And that’s what they want — something they can fill out on the Web, something that doesn’t take very long to complete.
These guys want to spend their time doing other things. They worry about their balance sheet. They worry about cash flow. They are high risk from their business thinking and lower risk when it comes to their cash. We need to be sympathetic to that.
If you are an SME and I say to you, ‘Here is the maintenance contract for your software.’ If you see this incredibly complex document, you’re going to think, ‘I hate legal bills, and I can already look at this and tell you this is $5,000 legal bill for the lawyer to run.’
But if I hand you a one-page maintenance agreement that you can understand and that you feel confident about and that you have a local channel partner that you trust and who you know has the resources of SAP right behind it, you have a comfort level that’s important and that leads to a delightful experience. So that’s the fourth pillar.
And the final two pillars?
The fifth pillar is designed around talent and training and having a combination of legacy SAP people who really know their way around SAP, know application software and business analytics software cold and a group of new people who are challenging the status quo, have a DNA of partnering and have a DNA of SME. This gives you the best of both worlds.
So the sixth pillar is around products. We want to make sure that our channel partners and salespeople are talking about or developing products on a regular basis. Our channel partners talk to lots of customers every day, so we’re making them a focus group that will go to Waldorf, Germany (where SAP’s global headquarters is located) twice a year and meet with our development and design team. They share what they’re hearing on the streets from entrepreneurs.
What is the next end goal for SAP through this initiative?
We’re not looking at this as a 10 percent growth play. This is a potential rocket ship. Our vision is to go from more than 110,000 users to more than a billion, and SME is going to lead the way.
Describe the profile of your typical channel partner under this setup?
It’s generally a smaller organization, with between 20 and 30 employees, of which four or five are salespeople with a very technology-oriented background. These are people who really understand how to design and implement an application ERP solution or business analytics solution. We are also looking at larger partners, with 30 sales reps and 200 employees.
So what type of products are you offering in this SME space?
Affordable ERP scaled down for the SME creates all the obvious efficiencies of ERP, such as terrific supply chain gains and fabulous returns on assets. They add a lot of value in the way of equity for entrepreneurs who are looking to develop their exit strategy. Potential buyers, whether that’s private equity or other companies, see an SAP-based system and know it’s got value.
We are also seeing a generational shift in the adoption of technology. The baby boomers are retiring or turning the business over to the next generation of management, and those people are much more comfortable with business analytics and with mobility. They don’t want to wait a day, or even 10 minutes, for a report. They want to pull out their iPad and look it up.
Our SME products allow smaller companies to level the playing field with Fortune 1,000 companies because they can do remote management, have field mobility, and have all the analytics that a Fortune 500 company has. We think SME is going to lead the way with mobility-based products.
When you are out there in the field talking to customers, what questions do you ask them?
First, we look for pain points and provide solutions. But I also think that game’s changing a little bit. We’re asking them more about their growth plans these days, and then determining how we can be involved in helping them achieve their growth strategies. That’s one reason why we’ve developed an entire slate of SME products, so that we can be solutions-oriented in that space.
So listening to customers is critical to this evolution, correct?
Listening is a core DNA requirement to be a member of our team. But one of the things that you have to be careful about in SME is that it’s much more difficult to do one-offs. In SME, you really need replicable solutions and you need to discipline yourself not to get into too many one-offs because the cost of sales and the economics start to collapse on you. That’s the mistake that many hardware companies made — they took their enterprise selling motion and moved it down to SME without making real adjustments to the product mix. For them, the economics collapsed. Instead, build some flexibility into the part that the channel partner can play with doing some of the work, themselves, but for us, we look for replicable solutions.
So beyond some customization, what other opportunities are there for channel partners?
They wouldn’t be going to SAP unless they believed it, so there’s a level of predictability with what they know they’ll be able to deliver to clients. Predictability in a lunch school menu is boring, but predictability in a channel partner program is an absolute core component because they want to wrap their business around a predictable model, not a supplier or vendor that’s saying direct one day, indirect another day, 20 percent discount one day, 30 percent discount another day. Who can build a business model around that? So we are extremely predictable and listen to our partners. That’s the only way you can grow a business segment like SME.
How to reach: SAP, www.sap.com