Product Life Cycle of SAP Essay

Pages: 3 (958 words)  ·  Bibliography Sources: 3  ·  File: .docx  ·  Level: College Junior  ·  Topic: Business

¶ … Product Life Cycle of SAP's R/3 ERP System

SAP AG (NYSE:SAP) is a global leader in the design, development, sales, installation and service of enterprise software with a breadth of enterprise applications purpose-built for the many requirements of large-scale and mid-size enterprises globally. Headquartered in Walldorf, Baden-Wurttemberg Germany, SAP pioneered the development of the Enterprise Resource Planning (ERP) system which is an essential software platform for managing the diverse operations of manufacturing and services businesses. SAP's introduction of SAP R/3 ERP system on July 6, 1992 was an inflexion point in their history, with over 40,000 businesses adopting the system as their core platform for managing diverse business operations (SAP Investor Relations, 2014). SAP reported $4.5B in revenues as of the close of their latest fiscal year, with $687M being in cloud-based application revenue and an additional $8.79B in support costs with total revenue totally $16.8B (SAP Investor Relations, 2014). Operating profit for the latest fiscal year was $4.4bB, a 13% increase over the previous year (SAP Investor Relations, 2014). SAP's acquisitions of SuccessFactors and Ariba are inflating their cloud revenue today and will normalize over time, which is a point given in the guidance by their Chief Financial Officer in the latest financial statements (SAP Investor Relations, 2014).

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Analysis of the R/3 ERP System Product Life Cycle

Essay on Product Life Cycle of SAP's Assignment

Having been introduced in mid-1992, the SAP R/3 ERP system is in the maturation phase of its product lifecycle. It is common for on-premise ERP systems to have product life cycles of three decades or more as enterprises that standardize on them are reluctant to replace them given the high costs to implement and fine-tune them over time to deliver valuable information (Claybaugh, 2010). With over 40,000 installations of the R/3 system globally and a commanding market share in their home country of Germany, where nationalistic sentiment runs high for the company, SAP primarily relies on upsells of their latest generation of software (SAP Investor Relations, 2014). Funding and financial sources in Germany are most often attributable to the loyalty of the customer base who often dutifully upgrades their software with every new release, and the large community of partner companies within Germany who are early adopters of their latest software applications and build their own applications on top of R/3 (SAP Investor Relations, 2014).

Of the many financial sources available to SAP from operations in Germany, the most predictable and controllable by the company is regulating their maintenance fees and seeking to optimize the amount of revenue generated. Their most dominant competitors in the enterprise software industry include Infor Microsoft, Oracle, Sage Software, all of which are charging 22% or more per year of their total contract values with customers for maintenance (Peslak, Subramanian, Clayton, 2008). The typical ERP system costs just over $1.5M to purchase and implement, with yearly maintenance being $330,000 a year common (Claybaugh, 2010).… [END OF PREVIEW] . . . READ MORE

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