In 1972, five systems analysts began working nights and weekends to create standard software with realtime data processing. Twenty-five years later their vision is a reality: SAP is the world’s market and technology leader in business application software.
On April 1, 1972 five former IBM employees founded SAP as Systemanalyse und Programmentwicklung (“Systems Analysis and Program Development”) in Mannheim, Germany. Their vision was to develop and market standard enterprise software which would integrate all business processes. The idea came to them through their work as systems consultants for IBM when they noticed that client after client was developing the same, or very similar, computer programs. The second part of their vision was that data should be processed interactively in realtime, and the computer screen should become the focal point of data processing.
From a start-up software vendor to global market leader Over the course of twenty-five years, their vision has transformed SAP from a small regional enterprise into a world-class international company. Today, the SAP Group is the global market leader in enterprise resource planning software, and has subsidiaries, affiliates and branch offices in nearly every industrial nation in the world. Important milestones in the company's corporate history include its conversion to a GmbH (a closely-held corporation) in 1977, the opening of the company's headquarters in Walldorf, and its conversion into a publicly-held corporation whose shares are listed on several stock markets.
By changing its structure to a publicly-held corporation, SAP significantly strengthened its capital base and laid the foundations for its employees to enjoy more of a share in the company's success. In the end, it is SAP’s employees – currently more than 9,000 of them - whose know-how, motivation and performance have nurtured the company’s progress. And it is their commitment and innovative drive which will pace the company’s future success and keep it ahead of the competition.
Over one million R/3 users Products have played the central role in SAP's success story. In this area, two milestones stand out: first, the development and 1979 market release of the R/2 software system for mainframes, and, second, the R/3 client/server software system introduced in 1992. Since its debut, the R/3 System use has grown explosively and now accounts for the lion's share of SAP product sales. At present, more than one million end users around the world work with the R/3 System.
The development of SAP products has continually benefited from major advances in the hardware sector. Back in 1972, the limited storage capacity of computers posed one of the biggest challenges. In those days, mainframes only had 500 kilobytes of storage capacity. Slow data input and output meant that only partial applications with a limited data volume were feasible. It was against this technological background that SAP signed its first customer, the German ICI subsidiary in Östringen.
With the successful implementation of its initial project, SAP had nine employees and, at the end of its first fiscal year, posted a profit on revenues of DM 620,000. In the second year of operation, two local businesses – the tobacco and cigarette manufacturer Roth-Händle and the pharmaceutical company Knoll - selected the newly developed SAP Financial Accounting (RF) System. This system quickly earned a reputation as an excellent standard package and installations expanded to 40 customers. But product development did not slow on this success, and a second standard product, the Materials Management (RM) System, with modules for purchasing, inventory management and invoice verification, soon followed. The benefits of SAP's integration philosophy showed through, with data from Materials Management flowing straight into Financial Accounting.
SAP moves to Walldorf In its fifth year of operations, SAP became a GmbH (a closely-held corporation) and took on a new name: Systeme, Anwendungen, Produkte in der Datenverarbeitung ("Systems, Applications, Products in Data Processing"). Revenues were now close to DM 4 million, and the number of employees had grown to 25. In 1977, SAP moved its offices and headquarters to Walldorf. In the same year, it signed its first two foreign customers, two companies from Austria. Just one year later, the customer base had grown to 100 and the number of employees stood at 50. SAP had also introduced another central module of the SAP System – Asset Accounting (RA). At the same time, through the development of a French version of the accounting module, SAP made additional steps toward the international markets.
By the end of the 1970s, new generations of powerful computers provided the framework for a comprehensive software system, and a major step in the development of SAP software - the R/2 System – was taken in 1978. In the same year, as sales headed toward the DM 10 million milestone, SAP began operation of its own computer center in Walldorf which, when completed in 1980, united development teams under one roof. That year SAP’s software became even more attractive with the addition of order history to the product range. At the end of 1980, 50 of the 100 largest industrial companies in Germany were SAP customers.
R/2 System goes international SAP’s close relationships with customers led to continuous enhancements in the existing program modules, while important new additions were made, such as the Cost Accounting (RK) System. The R/2 System was now ready for the international market. New computers with drastically improved price/performance ratios helped expand the customer base, and SAP raised its profile still further by appearing at the Systems trade fair in Munich - the company's first-ever presence at an industry trade show.
In 1982, SAP celebrated its tenth anniversary, with sales soaring 48% to over DM 24 million. By the end of the year, 236 companies in Germany, Austria and Switzerland were working with the SAP standard programs. Sales continued to climb in the following year, increasing by 45%.
In 1984 SAP took additional steps into the international arena with the founding of SAP (International) AG in Switzerland, whose focus was to increase sales of the R/2 System in international markets. Development teams began work on two new applications, Personnel Management and Plant Maintenance, while the Production Planning and Control System was installed at its first pilot customers.
1985 was characterized by further expansion. The Walldorf headquarters had grown to 10,000 square meters of space, while at the Swiss subsidiary a new headquarters was occupied. SAP systems were now in use in most European countries, and SAP began to penetrate markets outside Europe - with customers in South Africa, Kuwait, Trinidad, Canada and the US.
The DM 100 million sales mark exceeded SAP continued to pursue international growth with the founding in 1986 of SAP’s Austrian subsidiary SAP Österreich Ges.m.b.H. in Vienna. At the parent company, SAP GmbH, the capital stock was increased from DM 500,000 to DM 5 million. The largest single hardware investment to date was made in Walldorf with the installation of an IBM mainframe costing DM 7 million. The year's sales topped DM 100 million, and SAP exhibited at CeBIT, the world's largest IT trade fair, for the first time.
The 15th year of the company's history was again characterized by powerful growth. Branch offices were opened in Munich and Hamburg, and subsidiaries established in four European countries - the Netherlands, France, Spain and the UK. Staff grew to 750, and sales more than doubled to DM 245 million, with 850 companies now using SAP's software systems. In 1987, SAP announced its strategy for a new generation of software, and the R/3 System was born.
SAP goes public SAP continued to grow in 1988 with the international sales network strengthened by the establishment of subsidiaries in Denmark, Sweden, Italy and the US. Other events included: the founding of SAP Consulting GmbH as a joint project between SAP and the consulting firm Arthur Andersen; the opening of an International Training Center in Walldorf; and the welcoming of Dow Chemical as SAP’s 1,000th customer. However, the most significant events of the year were the increase of SAP’s capital stock from DM 5 million to DM 60 million, the subsequent conversion of SAP GmbH into a stock corporation, SAP AG, and the flotation of SAP shares on the stock market. SAP shares were quoted on the securities exchanges in Frankfurt and Stuttgart.
During the next year, 1989, SAP shares began trading on the Zurich stock exchange. SAP expanded its alliance and strategic cooperation approaches by taking a majority investment in TOS GmbH in Freiberg. Through the "International User Conference" in Lausanne, Switzerland, and the first "SAPPHIRE" user conference in North America, SAP demonstrated its solid commitment to direct international customer contact. This crucial commitment was to become more and more important to SAP’s success in the coming years.
Over 1,000 employees SAP (International) soon grew to twelve subsidiaries, including Canada, Singapore and Australia. SAP's growing profile in 1989 was evidenced by a number of events: the large number of participants attending the first Annual Stockholders' Meeting, the strong employee growth to more than 1,000, and the expansion of the customer base. Recognizing this success manager magazin named SAP "Company of the Year" – a distinction SAP would receive twice more in the next few years.
In 1990, SAP's capital stock was expanded to DM 85 million with the issue of preference shares. SAP strengthened its commitment to small- and medium-sized businesses by an investment in the software company Steeb and the acquisition of software vendor CAS. In the same year, SAP and Siemens Nixdorf founded SRS GmbH in Dresden, gaining a firm foothold in the East German market. Sales grew strongly to over DM 500 million, and the number of staff grew to 1,700.
SAP develops Russian R/2 version Strong growth continued unabated in 1991. The acquisition of Steeb GmbH was completed and its activities were merged with CAS to form STEEB-CAS GmbH, creating a high-caliber software company with an attractive product offering for the small- and medium-sized company market. With SAP’s Eastern European business developing quickly, SAP collaborated with a local Russian software company to develop an R/2 version in Russian. The first Japanese installation of SAP software was successfully completed. At the end of the fiscal year, the SAP Group boasted 2,225 customers in 31 countries and sales of more than DM 700 million – an increase of over 40 percent. The company had more than 2,500 employees.
In its twentieth year, SAP opened a new Development and Sales Center in Walldorf. The two-year project cost roughly DM 140 million and represented the company's largest single investment to date. In preparation for additional development, SAP’s share capital was expanded by DM 15 million to DM 100 million through the issue of 300,000 preference shares. SAP was now firmly established as a global company, with South Africa, Malaysia and Japan the newest additions to its 15 subsidiary companies. By 1992, almost half of the DM 831 million in product revenues were being generated outside Germany, and the availability of the software in 14 different languages was adding significantly to its attractiveness.
Shipment of the client/server system R/3 With the R/3 System release in mid-1992, SAP began to penetrate the mid-size market, and into branches and subsidiaries of large companies. The release of the R/3 client/server system was the most significant event in SAP’s history and started a record of growth that even SAP’s most optimistic planners had not predicted.
SAP took top position among German software vendors in 1993. On an international scale, the company moved to 7th place among software companies, establishing a clear lead in the global business applications software market. Sales surpassed the important DM 1 billion mark for the first time in 1993, and the global customer base stood at 3,500 companies. SAP made an investment in iXOS Software GmbH with the aim of developing and marketing graphical user interfaces and optical archiving of documents.
New development center in Foster City, California Releases 2.0 and 2.1 provided R/3 users with even more functionality. With the R/3 System already running on six hardware platforms, SAP and Microsoft signed an agreement to port R/3 to Windows NT. Other events included: the founding of SAP’s 18th subsidiary in the Czech Republic, the establishment by SAP America of a development center in Foster City in Silicon Valley, California, and the introduction by SAP Japan of a Kanji version of R/3.
1994 was yet another record-breaking year with sales jumping 66% to over DM 1.8 billion. By the end of the year, SAP employed more than 5,000 staff worldwide, and 200 of the more than 4,000 customers were using the R/3 System in production operation. A Swiss customer was the first customer to go live with R/3 on Microsoft’s Windows NT – a mere four months after the platform became available. Since its rollout in 1992, R/3 had now been installed more than 1,000 times. SAP development received ISO 9000 certification, and R/3 Release 2.2 was completed on schedule and included a wide range of enhancements in Logistics. SAP continued to expand its sales organization and strategic alliances. In Germany, SAP acquired a 52% stake in DACOS Software GmbH with the aim of developing an integrated software solution for the retail industry. The 19th subsidiary opened in Mexico City.
The Annual Stockholders' Meeting agreed to a DM 400 million capital increase out of retained earnings, bringing total capital to DM 500 million. The resulting 1:4 stock split was positively received by the market and led to a significant increase in stock price levels.
Microsoft chooses R/3 More than 6,000 companies of all sizes were among SAP customers in 1995, some two-thirds of which solved their IT tasks using the R/3 System. During the year Microsoft joined IBM as an R/3 customer from the high-tech sector.
In 1995, R/3 became the largest source of overall revenues, with a DM 1.7 billion share of total sales of DM 2.7 billion. Growth prospects were strengthened still further with the new R/3 Release 3.0, a functional and technical milestone in R/3 development. With this version the important areas of production planning and control were now comprehensively covered. Another technical addition was the availability of R/3 on the widely used IBM AS/400 platform.
The indirect sales channel concept was introduced in Germany, with SAP forming partnerships with value-added resellers so as to better support small- and medium-sized businesses. A new Service and Support Center opened in Walldorf with room for some 750 employees. SAP now employed more than 7,000 staff.
Global profile: SAP represented in 40 countries In 1995, SAP further increased its international activities with new subsidiaries formed in China, Argentina, Brazil, Korea, Poland, Russia and Thailand. SAP was now represented in over 40 countries by subsidiaries, branch offices or partner companies. An industry solution for the process industry (eg., chemicals, pharmaceuticals, food and beverage industry, and semiconductors) was announced in the US.
With 1,400 stockholders and guests, the number of attendees to the 1995 Annual Stockholders' Meeting was more than triple the 1994 figure, and the ASM approved changing the par value of SAP shares from DM 50 to DM 5. Shortly thereafter SAP entered the German stock index (DAX). Both events had a positive effect on share prices.
Sales reach DM 3.7 billion in SAP's anniversary year SAP's success continued into its 25th year of operations, with sales exceeding DM 3.7 billion. Over the course of its 25-year history, SAP showed that business processes can be modeled in a standard way across and within industry sectors. When the IT industry developed a flexible and cost-effective client/server architecture, SAP provided its customers with the right product at the right time - the R/3 client/server system.
R/3 becomes Internet-enabled The success of R/3 has propelled SAP to the top of the global software market. IT is undergoing yet another revolution with the advent of the Internet, and SAP is again there with a solution: the latest version of R/3 provides the first comprehensive, Internet-enabled business application package. Release 4.0, which is already in development, further increases the attractiveness of the R/3 System by making it more user-friendly. Small and mid-sized businesses should especially welcome this development. The R/3 System is here to stay, and users can look forward to its continuing enhancement.
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