John Schwarz, SAP BusinessObjects chief talks to in an exclusive interview

21st June 2009

Alongside IBM and Oracle, SAP BusinessObjects has emerged as one of the big three survivors of the massive shake-up in the Business Intelligence and Performance Management marketplace.  Now that the dust has settled on the acquisitions of Armstrong Laing, Cartesis and Outlooksoft what sort of business has emerged and how is it positioned on the global stage? To answer these questions, Gary Simon, FSN’s managing editor met in London with John Schwarz, a member of SAP’s Executive Board, who counts among his many responsibilities the management of the BusinessObjects division.

The financial justification for SAP’s acquisition of BusinessObjects around 18 months ago appears to have panned out well.  Schwarz reports that combined revenues met shareholders expectations and cost savings achieved post merger were better than expected. Like most businesses in the sector, trading was romping ahead until the calamitous events of last autumn but, in common with everyone else, business is now more muted.  So what is happening right now?

“There are no really visible big wins out there which would signal a change in customer behaviour and we are still early into the recession.  Customers were in shock at the end of last year so spending froze – even in strategic areas.  What we see now is that budgets are down but customers do have a budget!”, says Schwarz.

The shape of SAP’s business has also changed with the new reality that has set in. “The business profile has changed from a relatively small number of very high value deals (SAP’s traditional hunting  ground) to a high volume of relatively small deals much more typical of BusinessObjects,” he adds.

SAP is betting on some of these lower value deals acting as the seed-corn for larger deals in the future. “People are concentrating on sustaining their businesses and projects with short term return on investment.”

But Schwarz also believes that the emphasis of Business Intelligence has moved away from passive reporting to a more analytical approach.  “BI is now much more interactive, analytical and predictive, targeted at specific functional areas,” he says.   “In this context the tools that customers are buying have changed. Data navigation, forecasting and predictive analytics which allow for lots of modelling and iterations of plans is now the name of the game. Furthermore, Bi is reaching a much broader audience.”

So within these trends what is SAP BusinessObjects’ basis of competition –especially compared to Oracle and IBM?

“Prior to all of the acquisitions all of the main players had a relatively common approach to the market.  We all had data integration capability, reporting, analytics, financial planning and a portfolio of BI content.  I think Oracle’s acquisition of Hyperion changed the focus of that business especially around BI.  Brio disappeared and Oracle put more store by the Siebel acquisition but I think this is too CRM specific. The result I believe is that that Oracle is more strongly positioned in financial applications but does not offer much competition in the BI space,” says Schwarz.

“Cognos did not have strength in financial planning but had good Business Intelligence capability.  However, since the deal with IBM it seems to have lots of product overlap and does not appear to know how to sell it.  As far as I can see Cognos has become an extension of IBM’s DB2 database business.”

“This all leaves SAP BusinessObjects as the only provider of the full range of BI and financial capability,”says Schwarz.  But does the market acknowledge it?

Schwarz concedes that earlier attempts at setting out SAP’s stall and product road map left room for improvement. The positioning of the former Cartesis product is a case in point with some observers believing that Cartesis, once a formidable competitor in the financial applications space, had been brushed aside in favour of Outlooksoft  a mid-market performance management tool which SAP acquired soon after Oracle purchased Hyperion.

Schwarz clarifies the mis-understanding. “After the acquisition we looked at the options. SAP had its own consolidation solutions as part of the ERP business and then we had to consider OutlookSoft and Cartesis. After a massive analysis project we concluded that Outlooksoft was relatively lightweight in financial consolidation and it was decided that Cartesis should be the core of consolidation for SAP going forward.  OutlookSoft is integrated with it for budgeting.”

So has it been a problem selling SAP BusinessObjects into Oracle accounts? According to Schwarz it has not. “Seventy percent of our business pre-acquisition was for non-SAP accounts and I don’ believe that we have lost any ground. However it is also the case that SAP accounts [utilising BusinessObjects] are growing very rapidly.”

The products may have been integrated but how about the organisations?  Is SAP and BusinessObjects behaving as one organisation?  Schwarz believes it is and counters the notion that former loyalties get in the way. “The core ERP market is growing (or was at the end of last year) at a small single digit growth rate.  Business Intelligence on the other hand was growing at a rate of around 30 percent. Sales representatives will sell what the market wants.  The sales force is now completely integrated”.

So why have a Business Objects brand at all? “SAP and Business Objects were separate legal entities within the SAP organisation but this is no longer the case. Our research showed that SAP BusinessObjects is a stronger brand than either SAP or BusinessObjects on their own, added to which Business Objects has strength within Oracle accounts and so we did not wish to take the SAP brand too visibly into those customers.”

But what about other competition?  In some quarters the “big three” are seen as lumbering giants, probably safe bets but too large to be innovative and at the cutting edge.  Indeed the last two years have seen a number of smaller and arguably more nimble software houses coming to market, many with niche offerings closing perceived gaps in the performance management space.

As an aside, Schwarz hasn’t written off Microsoft in the performance management market quite as quickly as other vendors have been prepared to do.  “Microsoft have tried to gain a foothold in performance management but it didn’t work, but I’m not convinced that they have abandoned the market altogether.  I think we may see them resurrect PerformancePoint in another guise perhaps in Azure cloud services.”

Schwarz rejects the idea that SAP BusinessObjects is too large to be innovative – though accepts that there will always be agile competitors on the fringes that develop interesting products.  “It is challenging appearing nimble when serving two distinct markets.  We have to appeal to large corporates seeking a high degree of integration and functionality whilst at the same time providing simpler solutions and services for the mid-market.  Both markets are attractive to SAP, but the challenge lies in the fact that you need BI to solve a business problem now.  Some customers do not have the time for IT departments and so you see some divisions and departments going out on a limb and purchasing systems from smaller players but I wouldn’t give any ground on innovation.  For example we are re-launching ‘ByDesign’ to bring more choice to the mid-market by offering BusinessObjects on-demand.  We are also about to deliver more collaborative tools to help solve problems,” says Schwarz.

“The barriers to entry in this market are relatively low and so you are always going to see dynamism and innovation elsewhere.  It’s a good thing and we can of course buy promising companies. In fact we have substantial interests in around 60 companies through our ‘incubator’ SAP ventures,” he adds.

SAP also encourages internal research often without boundaries to give teams the ability to create new capability unconstrained.  “The challenge is integrating this ‘wild duck’ thinking into the core of the business but our in-memory processing and SAP BusinessObjects Explorer for intuitive information search and exploration are good examples of innovation that give increases in performance by a magnitude of 2 to 3 times.”

So where next for SAP BusinessObjects?  What is clear is that SAP is in a relatively comfortable position.  The merger seems to have settled down and its sheer scale means that smaller suppliers will have a uphill struggle to take significant market share.  Only large rivals such as Oracle and IBM could disturb the balance in the short term and even the threat from the mighty Microsoft appears to have receded – at least for the time being. The global economy might be subdued but Schwarz has every reason to be upbeat.

Note: SAP published its 2009 EPM Statement of Direction in June 2009 which overlapped with the publication of this article.  In this statement SAP says that it continues to sell and support both SAP BusinessObjects Planning and Consolidation (formerly OutlookSoft) and SAP BusinessObjects Financial Consolidation (formerly Cartesis) which are both core components of its long-term EPM strategy.  SAP’s June EPM Statement of Direction is available from its website.