Out of Print: A new writing feature based on out-of-print business books
SAP, How consultants helped SAP win, and how consultants are winning with Gen AI today
Out-of-print, a new writing feature
With the advent of Gen AI, I’ve started reading older, (often) out-of-print business books to capture how people thought about platform shifts before, or just after, the shifts. It’s easy to think, “this time is new”, but people have adapted to new technology changes many times before. While the specifics will be different, humans are relatively consistent, and lessons can be learned.
The first book is on SAP (The European Software powerhouse Americans rarely discuss). Written by Gerd Meissner, “SAP: Inside the Secret Software Power”1 covers SAP's founding, growth, and acceleration through to the 1990s. A key to SAP’s rapid acceleration in the 1990s, consultants, provides insights on trends of todays.
Key takeaways from reading this book
The Government can dramatically impact a market
Platform shifts can provide huge opportunities for growth, even for 15+ year old companies (it’s never too late)
Consultants can be a vital part of growing a market, as we see today with Gen AI
The Birth of SAP
SAP began in 1972 when Hasso Plattner, Dietmar Hopp, Claus Wellenreuther, Hans-Werner Hector, and Klaus Tschira saw an opportunity in the wake of an antitrust case against IBM. The case threatened IBM's practice of bundling software with hardware; this case created the software application market. SAP was one of those companies.
The founders' idea was to develop standard software that many companies could use, particularly for accounting and logistics management. They had a particular focus on data and information processing. As Hopp explained, "From the very beginning, our concept was to set standards in information technology."2
R1 Real-Time Processing
SAP's software allowed businesses to process data in real-time versus the then standard batch processing. This capability was enabled by SAP's use of database technology and memory management. Instead of processing transactions in batches at the end of the day or week, SAP's system updated the database immediately with each transaction.
This real-time capability gave businesses up-to-date information for decision-making, a revolutionary concept in the 1970s. As Klaus Tschira explained, "The point was to make available a system that at any time could answer information requests."3 This transformed how businesses managed their operations, providing real-time insights that were previously impossible to obtain. Real time processing was just one of the benefits over IBM’s offering.
Dialog (Interactive) Programming
SAP's introduction of dialog programming enabled interactive data entry and retrieval. Users could input data and receive immediate responses, making the system more user-friendly and efficient than previous systems that required batch input and processing. This innovation significantly improved the user experience and increased the software's accessibility to a broader range of employees within organizations.
Financial Integrity
SAP's software stored all transaction data as a unit, ensuring traceability of each bookkeeping operation. This principle meant that every financial entry in the system had to be tied to a specific business event or "voucher." For example, a payment would be linked to an invoice, which in turn would be linked to a purchase order.
This approach created a clear audit trail and improved financial control and transparency. It was a significant advancement in financial management systems, providing businesses with greater confidence in their financial data and making audits more straightforward and reliable.
The Mainframe Era: R/2 and US Challenges
SAP's initial product, later known as R/2, ran on mainframes. R/2 leveraged the mainframe's processing power to handle complex business processes for large enterprises.
While R/2 found success in Europe, SAP struggled with the US market. By 1989, only 70 out of 1,800 R/2 customers were in the United States. If SAP failed to catch the next tech wave, it would have stayed a nice, but mediocre software company.
The Client-Server Shift: R/3 & SAP’s Big Break
Client-server systems provided a new market opportunity for SAP. SAP introduced a client-server based system introduced in the 1990s – R/3. R/3 caught the broader trend of distributed computing. Client-server architecture allowed for more flexible and scalable systems, with processing divided between centralized servers and individual client computers. Architecture wasn’t the only innovation.
R/3's graphical user interface appealed to users familiar with Windows and Apple interfaces at home, making the system more intuitive and user-friendly. R/3 was a major product breakthrough for SAP and adoption in the US. US revenue grew over 6x in 4 years, thanks to R/3.
This transition from R/2 to R/3 wasn't just a technical upgrade; it represented SAP's ability to anticipate and adapt to fundamental shifts in computing paradigms. Customers need help with shifts in computing paradigms, though.
More Than Software: Consultants Needed
SAP's growth wasn't just about software. Software that spanned established, global companies was complex. ERPs were new and expensive. A 1996 study found that the average time required for R/3 implementation was 15 months, with an average project budget of $2 million4 (~$4M in today’s dollars).
Companies could not get the full benefits of R/3 on their own, and SAP couldn’t fulfill all of the implementation demand by themselves. SAP developed a strategy of working with, and selling through, consultants.
Consultants played a vital role in translating SAP's technical capabilities into business value. They helped clients redesign their business processes to take full advantage of SAP's capabilities, a practice that became known as "business process reengineering."
By certifying external consultants and partners, SAP could scale its implementation capabilities far beyond what it could achieve with internal resources alone. This allowed the company to grow rapidly without being constrained by hiring and training bottlenecks. The high price points and ERP gold rush did create quality control issues. To standardize the implementation and consulting quality, SAP created a certification program.
The Power of Certification
By 1996, SAP had introduced certification programs for IT professionals, similar to Novell's Certified Novell Engineer (CNE) and Microsoft's Certified Professional Program. These certifications provided several benefits:
For SAP, they ensured a pool of qualified professionals to implement and support their software, crucial for the company's growth. For consultants, certifications provided a way to demonstrate expertise and command higher rates. For customers, certifications offered assurance that they were working with qualified professionals, reducing the risk of implementation failures.
This ecosystem approach created a virtuous cycle: more certified professionals led to more successful implementations, which drove more SAP adoptions, which in turn attracted more professionals to become certified.
Shifting from SAP's success to today, there is a key parallel with consultants. Just as SAP's growth was fueled by a network of skilled implementers and advisors, businesses are turning to outside experts to get help with AI.
Gen AI and the Current Consulting Boom
Today’s consultants are seeing large growth thanks to Gen AI, but it's not just enterprises that are engaging consultants; demand spans from small businesses to large enterprises. A key difference, today, is that global freelancers can help with experimentation, installation, and implementation.
AI Consulting for Small Businesses
Freelance platforms are seeing significant growth in AI-related services. Upwork reported 50% year-over-year growth in its AI services category in Q1 2024, while Fiverr saw AI services nearly double their Gross Merchandise Value (GMV) in Q1 2024, with over 50,000 customers ordering AI services5.
Micha Kaufman, Fiverr's CEO, noted, "Fiverr has become the destination for businesses to get help implementing GenAI and take their business to the next level.”
Enterprise AI Consulting
Large consulting firms are also seeing rapid growth in AI services.
Accenture reported $2 billion in generative AI sales year-to-date in FY Q3 2024, with $500 million versus $300 million in sales & roughly $100 million in revenue from GenAI in FY 2023.
Wipro achieved over $900 million in new GenAI bookings in FY Q3 2024, bringing their total to $2 billion in GenAI sales year-to-date.
Julie Sweet, Accenture's CEO, emphasized the strategic importance of AI consulting:
GenAI is acting as a catalyst for companies to more aggressively go after cost, build the digital core, and truly change the ways they work, which creates significant opportunity for us. And this is why clients are coming to us. We are able to help our clients with this AI rotation because of our broad services across strategy and consulting technology and operations, as well as everything customer through Song and digital manufacturing and engineering through Industry X and our relevance across the functions of the enterprises and 13 industries.
Navigating the AI Revolution: Lessons from SAP
SAP's journey offers several lessons for companies navigating today's generative AI landscape:
Embrace Disruptive Technology Just as SAP capitalized on the shift from bundled to independent software, today's startups are leveraging generative AI to challenge established players. Companies must be willing to embrace new technologies and business models.
Invest in New Skills SAP's growth created demand for specialized skills like "dialog programming". Similarly, generative AI is creating demand for prompt engineers. Businesses must invest in developing these new skill sets.6
Build a Strong Ecosystem SAP's success relied on its network of consultants and partners. Companies in the AI space should likewise focus on building ecosystems of developers, data providers, and implementation experts. This is an opportunity for OpenAI and Anthropic to lean into.
Conclusion
SAP's journey from a small startup to a global software powerhouse offers a blueprint for success in the generative AI era. Just as SAP capitalized on the shift from mainframes to client-server architecture, today's companies must navigate the transition from traditional software to AI-driven solutions. The importance of building a strong ecosystem, evident in SAP's consultant network, is mirrored in the need for AI-skilled developers, data scientists, and implementation experts today.
https://www.amazon.com/SAP-Inside-Secret-Software-Power/dp/0071347852
SAP: Inside the Secret Software Power, Page 8
SAP: Inside the Secret Software Power, Page 27
SAP: Inside the Secret Software Power, Page 117
Fiverr International Ltd. (FVRR) J.P. Morgan Global Technology, Media and Communications Conference, May 20th, 2024