SAP is first and foremost the story of five IBM engineers who believed in a single platform system. From its first ERP R1 to S/4HANA, the German firm has never stopped innovating.
23/02/2023
SAP History: 50 years of ERP and Innovations
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The year 2021 was marked by a record. Indeed, nearly 1 million companies have been created, a figure never reached before.
If all the steps are now simplified, the challenge is no longer to see your company born but that it prospers to, you never know, become an international heavyweight.
SAP is no exception to the norm. Created by five engineers, it is difficult to know if they expected to build a world-leading ERP company. A look back at the history of the creation of the German firm.
From IBM to SAP
Stuttgart area, Germany, 1972.
As the American company IBM began to develop distributed computing, it set up a project that would change the computer history.
Indeed, Xerox, which had bought a few years earlier a patent to manufacture the first photocopiers, wanted to migrate its entire system onto a single platform. Five engineers constitute the working group:
- Hasso Plattner: born in 1944 in Bavaria
- Klaus Tschira : he was born in 1940 and studied physics before moving into the field of computer science
- Hans Werner Hector: he was born in 1940 and studied mathematics and joined IBM
- Dietmar Hopp: born in 1940, he studied telecommunications engineering before working for IBM
They quickly had the idea of setting up a system based on Scientific Data Systems software. But very quickly, the project was transferred to another team.
The story could end there. But the five employees have a hunch and are convinced that this project could be applied to many companies.
They decided to leave IBM to create their own company and dedicate themselves to this. Their company was finally born on April 1st 1972. It would quickly take the name of SAP AG Systeme, Anwendungen und Produkte (systems, applications and products in the field of information technology in English).
Their observation is simple : in a company, each department has an independent information system. Thus, all applications were developed separately in each of the systems.
This led to duplicate data and therefore a higher probability of making mistakes. A central system would bring the data together, make it easier to access and reduce the number of errors.
SAP AG soon obtained its first customer: Imperial Chemical Industry. The British chemical company wanted an accounting and invoice management solution.
It took a year to develop the German company’s first product: Real Time Finance, based on the IBM operating system, which enables payroll and accounting management.
Contrary to what had been thought at IBM, they very quickly distinguished themselves by choosing local data storage, a revolution compared to the punch card data storage used by IBM and which required manual intervention. SAP revolutionized data processing by introducing real-time updates.
The year 1973 marked the release of a modular system updated in real time, SAP R1, which brought together several functions on the same system: IBM’s DOS. The computer revolution is underway
SAP's Development between Innovation and Internationalization
The success of R1 allows SAP to become famous and expand its customer base. The pharmaceutical company Knoll and Rothlande chose to implement SAP software.
R1 enabled SAP to generate more than 300,000 euros in sales (about 585,000 Deutch marks) for 9 employees.
In 1975, the company opened its product to other fields. Thus, a second module was created to facilitate the management of purchases, stocks, etc. But this opening is not limited to products.
In fact, 1977 marked the beginning of internationalization with requests from Austrian companies. The number of SAP customers reached 40 and the company underwent major structural changes, which were essential for further growth and prosperity.
The final headquarters moves to Walldorf, north of Stuttgart, to accommodate the 25 employees. Its status also changes: SAP becomes a GMbh company, the German equivalent of a Private limited company. By the end of 1976, the company had a turnover of more than 3 million DM (1.5 million euros).
But in order to pursue further internationalization, the five men were aware that they needed to update the system. So they started to think about a new version of their system. R2 was finally released in 1981. It will revolutionize SAP R1 in three ways:
- More business functions are available, including Quality Management, Maintenance, Finance, Sales…
- The ability to easily translate information and convert currencies to keep up with the ever-increasing internationalization. Many foreign subsidiaries are open (Switzerland, Denmark, USA…)
- A two-level architecture with the presentation on one side and the application and database on the other
It is once again a success for SAP, which, by adapting to the needs of companies, obtains more and more prestigious customers: IBM, and Capgemini.
For its tenth anniversary, the German company shows a balance sheet in constant progression:
- 240 customers in 3 countries
- More than 100 employees
- More than 24 million DM in sales (12 million euros)
A Rapid growth
The 1980s marked an acceleration in SAP’s growth with an exponential increase in human resources and sales. SAP was now running on four servers (three IBM and one Siemens).
The Walddorf premises were expanded six times, including a training center.
In 1988, its status changed: SAP became a public company and was listed on the Börse Stuttgart, the German stock exchange. The objective was to raise funds for research and development.
The fall of the Berlin Wall also benefited the company, which soon expanded eastwards into Germany and then into Eastern Europe, notably with a contract with the largest Russian software publisher, ZPS.
AP has been very successful in its internationalization and pays attention to its foreign relations. Thus, to get closer to American customers, the first SAPPHIRE was held in 1989 in Priceton.
At the same time, the development of R3 began after the release of IBM’s AS/400 offering and its first UNIX systems. The initial objective of SAP R3 was not to replace R/2 but to offer a system adapted to SMEs.
At the beginning of the 90s, SAP had :
- More than 1000 employees and customers
- A turnover of 85 million DM (43 million euros)
The SAP R3 Innovation that will Revolutionize Companies
SAP R3 was released in 1992. With this version, the mainframe is over: the system is based on a client/server principle. More affordable and scalable, it allowed SAP to enter smaller companies.
But its development was not easy because it was too demanding in terms of resources and had difficulty functioning correctly on a server. In the end, it was on Unix that the product proved to be the most convincing.
Thus, for the first time in its history, SAP has totally emancipated itself from IBM. Presented at the 1991 SAPPHIRE, it quickly convinced American companies.
At the same time, SAP changed its strategy and removed the installation of the system from its offer, leaving it to partner integrators.
This was a great success, as was the new version of the ERP, which enabled it to reach the mythical 1 million DM turnover mark. Thanks to R3, we can say that SAP has really established itself on the international scene.
In addition to its turnover, the company saw its share price increase by 1000% in less than 10 years to become the best-valued German company in 1996.
But this period also saw two shadows appear. The first concerned R3’s structure, which some people described as too complicated. Indeed, it could take more than a year to set up and the impressive number of menus did not (at least at the beginning) help to increase the company’s productivity.
The second is more global with the appearance of the first competitors on the market. However, SAP was alone in the world at the beginning of the 1990s, to the point that some experts considered its status as monolithic, with the power to impose its product on companies.
In the mid-1990s, two software companies made significant inroads into the market:
- Oracle Systems: paradoxically, the Oracle database was the most used on SAP making SAP the largest Oracle database reseller worldwide. But the American firm quickly declared that it wanted to overtake SAP in the software supply market
- Baan: the Dutch company has always remained behind SAP but has still managed to seduce large companies that have turned to Baan’s product in favor of R3 (Siemens, Boeing …)
Despite this, SAP continues to shine and on the eve of its 25th anniversary, it presents some positive results and figures:
- Major events such as the SAPHIRE (more than 17,000 customers in total for the 1996 edition in Austria, Japan, and the United States)
- A stock market quotation that has never been so high with the intention of being listed on the New York Stock Exchange (which will finally happen in 1998)
- 6 billion DM in sales and 13,000 employees in 1997
- More and more famous customers, including Coca-Cola, Microsoft, and Burger King
The Revolutions of the late 1990s
Two events will particularly mark SAP during this period: the arrival and the democratization of the Internet from which the new MySAP.com strategy will result.
Although the Internet had already arrived in the 1980s, it was not until the mid-1990s that it began to flourish before being truly democratized in the early 2000s.
This revolution also led to the arrival of the intranet within companies, a kind of private network protected by firewalls.
Once again, SAP is going to show that it is a company that is always one step ahead by adapting R/3 to all these changes. Together with Microsoft, they will allow companies to connect web applications to SAP R/3.
With this innovation, Hasso Platner, co-CEO of SAP, announces the new strategy of SAP called MySAP.com. In addition to ERP applications, SAP is starting to develop e-commerce solutions, including a marketplace that will gradually open up to other publishers.
Other SAP products will be marketed such as SAP Workplace, which offers companies a portal giving access to personalized information.
It was not until 2004 that the company connected its ERP to the Internet: R3 gave way to SAP ECC (ERP Central Component), SAP’s first ERP running on a web-based application server.
At the same time, mySAP.com becomes mySAP Business Suite while many other products are offered such as Netweaver.
But these years were also marked by the recognition of the company as a great place to work. In the annual “Great Place to Work” awards, SAP was repeatedly recognized as the best employer in Germany and was in the top 10 in many other countries.
The 2008 Crisis and the Recovery Plan
Like all companies, SAP did not escape the consequences of the economic crisis. It experienced a brutal reduction in pace and was forced to let go of many employees.
Nevertheless, the company is committed to helping its customers through this difficult period with special programs.
This allowed the company to observe a moderate reduction in its margins and not be as impacted as other companies.
From 2010, the figures are back in color and SAP begins to look at a booming market: Cloud computing. The acquisition in 2011 of Success Factors, the first cloud application provider, confirms this new strategy.
The Cloud will quickly become the key to SAP’s communication. The various offers are gradually declined in the Saas version and hosted by AWS.
The figures continue to increase steadily, which encourages SAP to place itself in an international strategy as demonstrated by the desire to conquer China and the transformation of the company registered on the Berlin stock exchange into a European company.
The S4/HANA Era
During the 2014 edition of SAPPHIRE, the announcement was made of a brand new version of the ERP called S4/HANA. Announced as an innovative ERP, it is based on in-memory technology and has multiple functionalities related to IoT or artificial intelligence.
Once again, SAP will show its ability to adapt and especially its visionary business sense. Indeed, the company will from this date focus on :
- Partnerships with the biggest companies ensure that they are always at the top of innovation. Partnerships with Apple in 2016 and Google in 2017 are particularly noteworthy
- A strategy resolutely turned towards CSR. Indeed, the German firm wants to position itself as a precursor in these areas. In particular, it will be the first multinational to obtain the Economic Dividends for Gender Equality (EDGE) certificate. It will also join in the great struggles of the 21st century in favor of ecology, with a carbon-neutral objective in 2025, and participation in the reduction of global warming and the presence of plastic in the oceans.
What is Next for the Next Few Years?
Currently, there is no indication that a new version of the ERP will be announced. On the contrary, SAP seems to continue to focus on S4HANA. Its objective is that as many companies as possible migrate to S4Hana, hence the very controversial decision to stop maintenance on ECC as of 2027 (with the possibility of an extension costing 3% until 2030).
Despite an irregular trend in the figures and the stock market in recent years, SAP has managed to remain powerful at the international level thanks to anticipation of new technologies and strategic choices that often pay off.
Moreover, in 2021, the firm recorded a turnover close to 28 billion dollars and has consolidated its place in the top 3 software publishing companies behind Oracle and Microsoft.
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