SAP CEO: Not more, but smarter IT investments

Accepting the idea that many businesses aren't prepared to spend more on enterprise application software, Germany's SAP AG aims to help them spend smarter.

"Today, enterprises spend about 10 percent of their IT budget on innovation, 30 percent on consolidation and 60 percent on operation," said SAP Chairman and Chief Executive Officer Henning Kagermann in a speech delivered Monday at the Strategic IT Management conference in Neuss, Germany. "We hope to change that to about 40 percent for innovation and a maximum 40 percent for operation over the next couple of years."

Making a pitch for perhaps the company's biggest product announcement last year, Kagermann said its NetWeaver open integration platform, residing between computing infrastructure and business applications, will lead the company's drive to reduce software costs.

Contrary to what some critics have claimed, NetWeaver does not represent a new price model for SAP, he said, but rather a move to introduce a new generation of technology that is designed to provide greater flexibility.

NetWeaver can link disparate applications and data sources, allowing companies to make use of their existing IT investments and personnel skills while exploiting the power of Web services, according to Kagermann. The system is interoperable with Microsoft Corp.'s .Net and IBM Corp.'s WebSphere platforms, and allows users to provision Web services that have been developed in Java. Kagermann called Java a "growing force" in enterprise applications and a trend that SAP, based in Walldorf, Germany, fully supports.

As for running enterprise applications from competitors such as PeopleSoft Inc. and Oracle Corp. on top of NetWeaver, Kagermann said such an option is possible but applications from SAP would run best.

Some analysts, including Charles Homs with Forrester Research Inc., view NetWeaver as an attempt by SAP to establish a de facto standard operating system for enterprise applications, similar to Microsoft's Windows operating system for desktop PC systems and, to a lesser extent, servers.

To further help reduce new product development costs for SAP and integration costs for its customers, the German software vendor has assigned several hundred engineers to a special program, called Vienna, to study what components in existing software products can be reused in new products, Kagermann said.

Pointing to a new technology that will substantially decrease SCM (supply change management) costs in the future, Kagermann said that RFID (radio frequency identification) systems will replace much of the work people are required to do today.

Earlier this month, SAP launched new infrastructure software designed to help companies manage and communicate data captured by wireless RFID inventory tags.

The Strategic IT Management conference was sponsored by the German business newspaper Handelsblatt and The Wall Street Journal.

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