April 12, 2011

As I see it, SAP is faced with a three-pronged challenge -- a latecomer among established competitors in a softening market. Here are a few pieces of evidence feeding my opinion:

  • While Fiserv and FIS have been in the core software business for 43 years (counting the DOB of some of their acquisitions), SAP has had its big toe in core for only a couple of years and now has decided to take the plunge.
  • Temenos, Oracle, Infosys and Misys were new kids on the block 20 years ago, but their block was fertile with opportunities for core vendors in the then-new market called offshore, or banking in the developing countries.
  • In previous decades ('70s – '90s) U.S. financial institutions had been migrating to new core systems at an annual average rate of more than 8 percent of the population. The ebb has fallen to 1.7 percent for 2009. And that's no one's fault. CIOs call it, "We're done with this once-in-a-career beastly project. Let my replacement worry about the legacy threat."
  • While the low-hanging fruit seemed to have been picked, it appears that SAP is gearing up for a five-year plan that will overturn its past five-year dud. In fact, of the seven vendors mentioned in this blog, SAP is least known for its core system, even to the extent that it doesn't have a brand name yet. SAP, however, is no slouch outside of banking, as in ERP systems.
  • This situation and its corresponding plan could look very appealing or very risky depending on who is managing the pro forma spreadsheets, and the rationale behind the business case. Every vendor wants a piece of the IT pie in banking. Once you eliminate government and manufacturing sector spending on IT, banking gets the biggest piece. Eliminate weak economies, lending defaults, undetected risks, packaging basic loan products into mirage-like investments, and managements that never walked the proverbial factory floor like Lee Iacocca used to do, then banking could once again become a very sweet business where IT is always preferred over the other grunt resource.

    The real question in SAP's plan should be, "What if we sell only five new core systems?"

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