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    DPO-215-EJuly 2010

    This case was prepared by Professors Sebastian Reiche and Pablo Cardona, in collaboration with Marco Fischer (SAP) asthe basis for class discussion rather than to illustrate either effective or ineffective handling of an administrativesituation. July 2010.

    Copyright 2010 IESE. To order copies contact IESE Publishing via www.iesep.com. Alternatively, write to [email protected],send a fax to +34 932 534 343 or call +34 932 534 200.No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in anyform or by any means electronic, mechanical, photocopying, recording, or otherwise without the permission of IESE.

    Last edited: 4/5/11 2-410-049 1

    SAP's Transformation from a Product to a Service ProviderThe Business Transformation Academy

    It was 5.30 p.m. on Tuesday, February 16, 2010 at the SAP headquarters in Walldorf, a smalltown near Heidelberg in the southwest of Germany. Dr. Axel Uhl, now Head of the Business

    Transformation Academy (BTA), was collecting his documents in the event room of Building21, one of SAPs futuristic office complexes. With the last workshop participants having left,

    Axel found himself reflecting on the kick-off meeting, which had seen SAPs BTA finallycome to life. A total of 34 participants from SAP, various academic institutions and severalof SAPs client companies had discussed the role, vision and goals of the BTA.

    It had taken two years to develop the idea of the BTA as a thought leadership network onbusiness transformation. The primary aim of the BTA was to support SAP customers,consultants and partners to enable successful business transformation projects. Axel washappy that the BTA had finally become a reality but, at the same time, he felt that the realwork had only just begun. Certainly, the network members brought together a wealth ofexpertise in business transformation that would help the Academy gain external and internal

    visibility and reputation. However, the diversity of its members also resulted in differentexpectations and objectives. Would the different members of the thought leadership networkmaintain the necessary commitment? Were there sufficient benefits for everyone tocontribute to the network at large? Axel was aware of SAPs past experiences in consulting,an area that had grown, yet remained in the shadow of the companys software license andsupport business. Was there sufficient senior management support within SAP to move theproject forward? And was the BTA the right tool after all to achieve its objectives? He feltthat he needed to show some quick results to justify the resources committed to the

    Academy. As he reflected on these challenges, he found himself revisiting historic events that

    led to the development of the BTA.

    ecch the case for learningDi stri buted by ecch, UK and USA N or th Amer ica Rest of the wor ldwww.ecch.com t +1 781 239 5884 t +44 (0)1234 750903All rights reserved f +1 781 239 5885 f +44 (0)1234 751125Printed in UK and USA e [email protected] e [email protected]

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    SAP

    In 1972, five former IBM employees founded a company called Systems Applications andProducts in Data Processing in Mannheim, Germany. The company name later evolved to theacronym SAP. The founders had a clear vision: to develop standard application software forreal-time business processing. The first year saw the development of financial accountingsoftware in close cooperation with their first customer. Later, this software wascomplemented by other software components. This led to the development of acomprehensive enterprise resource planning (ERP) software solution called the R/1 system(where R stands for real-time data processing). In the following years, SAP further refinedand broadened the applicability of R/1 and introduced its successor model, R/2. The companyalso began to expand into other software applications including customer relationship andsupply chain management tools.

    In the mid-1980s, SAP opened its first foreign sales organization in Austria and entered apath of tremendous international expansion in the following years. By 1992, SAPs businessoutside Germany accounted for over half of its total sales worldwide. The 1990s also saw theintroduction of SAP R/3, based on a client server architecture. This enabled SAP to set astandard in business software and defined the companys DNA as an integrated end-to-endsoftware solution provider.

    In the advent of the Internet era, SAP introduced mySAP.com, using Web technology to linke-commerce solutions to the companys existing ERP applications. In addition, SAPdeveloped user-focused software applications such as SAP Workplace, which offered role-

    specific access to information, and the SAP NetWeaver technology platform, integratinginformation and business processes across different technologies and organizationalstructures. In 2008, SAP acquired Business Objects to provide a comprehensive portfolio ofbusiness performance and optimization solutions. Although SAP had traditionally generatedthe bulk of its business from large enterprises, in the new millennium the companyincreasingly began to target small and medium-sized enterprises.

    SAPs comprehensive range of enterprise solutions provided a growing pool of softwareapplications, which SAP or SAP-trained consultants from systems integration providers suchas Accenture, Infosys or Wipro would then customize. While SAPs core business had beenand still was the selling of software licenses for software solutions and related support

    services, the company also offered a growing range of consulting services. These servicesaimed to assist customers with their software adoption, implementation and adaptation aswell as to train end-users, systems integrators and other partners on the use of SAP products(see Exhibit 1 for an overview of SAPs product and service portfolio). SAP consultantsprovided customers with expert guidance to fully exploit the functionality embedded in SAPsolutions and achieve a faster return on investment in their implementation and application.

    Over the course of more than three decades, SAP had evolved from a small, regionalenterprise into a global company. In 2010, SAP employed 47,578 people, generated annualrevenues of 10.67 billion (see Exhibits 2a and 2b for selected financial data) and featuredover 92,000 clients that run SAP software in over 120 countries, making SAP the worldsleading provider of business software solutions.

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    Business Consulting at SAP

    Traditionally, the role of SAP consultants had mainly been to explain specific aspects and thepotential of SAP software to their clients. However, they were not at all involved inimproving processes, thinking about new processes or building a case for change. LarsGollenia, Global Head of Business Transformation Services, remembered that SAP consultantswere simply not advising the client. Around the turn of the century, the company realizedthat its customer needs were shifting from technical features to a focus on business value. Aclear indication of this trend was that SAPs traditional buyers were changing. While the CIOused to be the main contact person for SAP, business owners and CEOs were gaining powerin software purchasing decisions. As Nicolas Steib, Global Head of Field Services ConsultingDelivery, explained:

    In the past, our customers came to us with their existing business processes and asked usto translate this into IT processes. Today, customers often expect us to provide them withbusiness process designs that represent best practices in their industries.

    Arthur Williamson, Program Director for HR and IT at Shell International, one of SAPs topclients, echoed this assessment:

    In the past, our organization took a view which I think is opposite to what shouldhappen. We used to start with our processes and developed our requirements and thentried to find a system which would fit. But in my mind thats wrong. You need to workwith the providers to have a set of requirements that are technology constrained. In most

    cases you get little value by modifying software to support your current processes. In thelong run you are better off accepting the constraints and focusing your efforts on changemanagement.

    In 2000, SAP decided to set up a team of 12 business consultants in Germany. In thefollowing years, the unit mainly provided spot consulting. Examples of spot consulting couldinvolve a few days of consulting support during the planning stage of a solution, a review ofwhat an implementation partner was doing or an assessment of the business value that couldbe created through SAP solutions. Despite the subsequent growth of these services, severalpeople at SAP thought that the company should not be involved in business consulting at all.In fact, SAPs culture had traditionally been based on software development and engineering

    rather than services. In some cases, consulting services were also diluting the high marginsSAP achieved through its license sales. Dr. Heiko Ewert, Global Head of BusinessDevelopment within Business Transformation Services, explained, however, that businessconsulting had an important role in ensuring SAPs necessary accountability to the customer:

    Clients expect positive business impact out of the investments that they make in SAPsolutions and they expect the software provider to take responsibility. We can only dothat if we have a certain amount of control over what happens in the project afterwards.The typical project that we sell may be initiated by strategy consultants. Based on theiradvice, the client decides to buy a certain SAP software product to support this strategyand then employs Accenture, Tata, or Infosys for the implementation. By this stage, you

    already cannot recognize the strategy that was developed half a year earlier. The project isfinished two years further down the track and then, for some reason, the business impact

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    does not materialize. If we work in this fashion, we have no control over what happens atthe customer. But afterwards, the client always blames SAP and says: Well, SAP doesnt

    work correctly.

    There has also been a trend in recent years towards greater integration of software productsand related services into solution packages. This linked business consulting even more to thesoftware product itself and led clients to demand closer relationships with SAP.

    SAP also started to expand its offerings to other markets. When SAP moved its businessconsulting activities into the North American market in 2001, the company hired a smallnumber of former McKinsey consultants. However, the unit developed into an independentconsulting boutique that was not integrated with the rest of the SAP organization and itsconsultants did not fully understand the SAP products. After just one year, the project was

    discontinued.

    Business Transformation Consulting: Towards Strategic Change

    In late 2007, SAP decided to make another attempt to establish business consulting servicesin North America, given the growth of the German unit. This decision coincided with a moregeneral discussion among the global leadership team of SAPs Global Field Services divisionabout the type of consulting services that SAP should offer its clients. The need for thisdiscussion became even more evident when the North American consulting team decidedagainst naming its unit Business Consulting. For the North American consultants, this brand

    carried a negative connotation because it was linked to the earlier failure. In the followingmonths, together with colleagues from marketing, the team developed a list of 10-15suggestions for possible names of the new business consulting unit, based on names thatwere still available in the market. Some of the suggested names included the termtransformation which met with initial resistance. As Dr. Heiko Ewert recalled:

    I remember the first time we discussed these suggestions in the Global Field Servicesleadership team with all the regional consulting heads and the Global Field Services Head,Dr. Bernd-Michael Rumpf. Some of them, especially the European head at that time, said:Thats not what we do. We dont transform our clients businesses. We implement SAPsolutions. Thats not business transformation.

    New Vision and Strategy

    What had started as a naming exercise turned into a far-reaching debate about SAP businessconsultings vision and strategy over the following months. Throughout these discussions,the members of the leadership team began to realize that business transformation wasactually a key pillar of the strategy. Finally, it was decided that it would be the businesstransformation area to where SAP wanted to move its consulting business within the next

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    five years. The Business Transformation Consulting (BTC) 1 unit was born. Nicolas Steibcommented on the opportunities that came with this new strategic focus:

    SAP has close to 100.000 customers. No one else is better positioned than SAP tomanage and accompany its clients transformation processes. For example, we have abenchmarking database for customers where we ask them to enter their data on someprocess efficiency metrics and they can assess whether they are average or above average.If you are a research company, you need to invite customers, interview them and thenanalyze the data to do this benchmarking. We have two million data points in ourbenchmark database! Customers dont need to have 100% solutions from SAP, but wewant to be the ones who orchestrate these business processes, designing them and helpingthe customers make them work end-to-end.

    The strategy discussions also revolved around what business transformation meant for SAPand how the company could position itself in the wider services market. Dr. Axel Uhlexplained:

    Business transformation for us is a significant change of the organization or part of theorganization due to either external or internal drivers that make this change necessary.Significant change means that there is a higher level of complexity, no clear boundariesand uncertainty in terms of the outcomes of the transformation process.

    John Lombard, Global Head of Field Services, Fast Growth Services at SAP, furtherelaborated:

    Business transformation is the integration of all different types of change initiatives inwhich SAP could support its clients. This requires a holistic approach and includes IT,people, strategy, organization and processes.

    Given SAPs expertise in business software and support services, the BTC unit defined aunique space between traditional strategy consulting occupied by firms such as McKinseyand Boston Consulting Group on the one hand, and solution and system integrationproviders like Accenture and Tata on the other. SAPs unique positioning would be as aservices and consulting provider able to bridge strategy and execution, connecting bestpractice business processes to SAP solutions. The first success stories followed soon.

    Although clients were initially surprised about SAPs new service offerings, customersatisfaction with the completed business transformation projects was generally high. LarsGollenia illustrated the effect BTC had on SAP clients:

    It is a bit like going to a bakery and the baker telling you that he has started sellingsausages. Now, you wouldnt necessarily ask for sausages in a bakery but if you are happywith the bread you have bought there in the past and the baker offers you sausages youmay give it a try. And if these are good sausages, you will probably buy them again.

    Despite these successes, according to Dr. Heiko Ewert, SAP was still not involved in leadingoverall projects. The real influence on senior management remained in the hands of systemintegration and implementation providers like Accenture, who orchestrated the clients

    1 As of January 1, 2010 this unit is called Business Transformation Services.

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    business processes and had ongoing senior-level contact with the clients. SAP realized thatthe company needed to become more of a partner or trusted advisor that accompanied

    implementation processes and maintained relationships with senior management at keyclients. Therefore, in 2008 SAP developed a new engagement model. The objective was tocreate value partnerships with around 400 of SAPs top customers, all very large companiesthat were thought to require such an engagement model. As John Lombard explained, SAPs5-year strategic plan saw a target of 25 established value partnerships by 2010 and 200

    value partnerships by 2014.

    The final breakthrough came in 2009 when SAPs top management team led by Lo Apotheker modified corporate strategy towards a greater service orientation, a direction thatsuited the nature of BTC well.

    Talent Requirements

    The BTC leadership team quickly became aware that the unit was facing a talent shortage tooffer the new services. To enable the necessary skill acquisition, SAP developed more than 40training sessions related to BTC. These ranged from short e-learnings to a series of certified3- to 5-day courses on specific topics such as business process management. The trainingsessions were not only open to anyone interested within SAP but also to external partnersand customers, with some courses being attended by almost 1,500 people. While this createda substantial pool of BTC talent, the skills that these courses helped to develop were limited.How many people within SAP were really able to engage with clients in business

    transformation projects at the most senior level as the new value partnership model wouldrequire? Dr. Heiko Ewert explained:

    It is about being a partner and working shoulder to shoulder with senior executives atour clients. So far there are a pretty small number of people who are actually on thatlevel. We have many people who are very senior when it comes to technical expertise,solutions expertise, and so on. But when it comes to talking about understanding businessstrategy and translating business strategy into IT strategy there is a real gap.

    It was not only the ability to interact with senior-level executives where the team identifiedtalent needs. Given SAPs core business of developing and selling software solutions, peoplealso had to be able to sell products. As Nicolas Steib summarized:

    What we need for this job is the almost impossible split between a trusted advisor and asalesperson. Normally, I either want to sell you something or I am a trusted advisor to

    you. You cannot be both. But the partners in consultancy firms do both. So it does work.This is the type of role that we need to implement.

    In the following period, the BTC leadership team worked on refining the necessarycompetencies for BTC consultants. Three different areas of development were identified:traditional management consultancy, project or program management and business solutionarchitecture. SAP realized that people at the top of the BTC unit, who were supposed to playthe trusted advisor role, would need competencies in all three areas. Not only would they

    need to influence decision making of SAPs customers, they would also need to be able tounderstand the key elements of successful projects and programs, and how to manage a large

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    portfolio of projects over time. Finally, they would need to understand how to design asolution landscape that could support the customers business and create business impact.

    It was evident that more time would be required to develop these different skills, especially ina company with a software engineering mindset. The recruitment strategy of the newlyrenamed Business Transformation Services (BTS) therefore consisted of an equal mix ofinternal and external hires that each brought in complementary skill sets. While externalrecruits would provide the competences in management consulting that SAP did not have onits own, internal hires had an understanding of software solutions, necessary to bridge thegap between business and IT. Given the earlier experiences in North America, thecombination of internal and external hiring was also meant to ensure that the BTS unitremained an integral part of the overall company culture. However, as Lars Gollenia pointedout, the pool of internal talent was limited. The ambitious targets for new value partnerships

    translated into a required growth of the BTS workforce from currently 600 to about 1,500 bythe end of 2012 (see Exhibit 3 for BTS talent development needs). The question was how theBTS organization could access, develop and leverage the required talent in the future.

    The Business Transformation Academy

    The talent shortage was not the only challenge that the BTS unit was facing. It was alsolacking visibility in the market. Many clients were simply unaware that SAP was offeringbusiness transformation services. In addition, very little explicit knowledge was availableabout business transformation. Most knowledge remained buried in the heads oftransformation managers of SAPs customers. This led to an insufficient understandingof why many complex transformation projects continued to fail. If SAP wanted to become asuccessful provider of business transformation services and a thought leader in that area, thecompany needed to do a better job of tapping into this knowledge.

    To address these challenges, SAP decided to bring together different stakeholders. First, tobuild market reputation, it was important to diffuse concepts and solutions in closecollaboration with its clients. Second, if SAP wanted to extend existing knowledge aboutbusiness transformation, joining forces with academic institutions seemed a logical step totake. Importantly, viewing business transformation as a holistic approach meant that aunique body of knowledge had to be integrated from different disciplines to find newsolutions for transformation problems. Later, this knowledge would serve as the basis fortraining customers, BTS consultants and SAPs external partners involved in transformationprojects. It would also lead to new consultancy service offerings. In 2009, to bring thedifferent stakeholders together, SAP developed the idea of the BTA as a thought leadershipnetwork on business transformation. As Nicolas Steib explained:

    In our industry everything works through partnerships. We needed to build a platform tointegrate our different stakeholders. Essentially, SAP is part of an ecosystem of around100,000 customers, partners and consultants. I believe that the Academy could be theenzyme that enables our ecosystem to successfully transform our customers businesses.I also think that the Academy has the potential to support SAPs internal transformation.

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    The BTA aimed to be the worlds leading network of business transformation. In his role asthe new Head, Dr. Axel Uhl defined the BTAs mission: to create and offer unique expertise

    on the drivers, strategies, and practices of large transformation projects. However, unlikeother consulting firms, the Academy would create and share knowledge in a global, inter-and transdisciplinary expert community that would consist of customer executives, industry-specific transformation professionals and top academics. This knowledge was to be developedthrough organizing regular conferences, collecting case histories of past transformationprojects and compiling a handbook on business transformation. Every member of thethought leadership network would contribute to these efforts. SAP also aimed to work withPhD students on a number of projects to advance academic knowledge about businesstransformation.

    Furthermore, a direct output of the Academy would be the development of educational

    programs on business transformation. For example, Dr. Axel Uhl envisioned a SAP MasterCertification of Global Business Transformation Managers to be launched for internal andexternal participants as well as other educational programs on business transformation incollaboration with academic institutions. The first internal Global Business TransformationManagers were to be certified by the end of 2010. These programs would not only enable theskill transformation of SAPs internal talent but also leverage the relevant skills among manyof SAPs partners involved in transformation projects, as well as the clients themselves. AsJohn Lombard pointed out, this was particularly important because SAP did not havesufficient staff of its own to accompany all its projects and therefore relied on partners suchas system integrators. This made external training an important part of BTS. Consequently,the Academy would allow SAP to scale its internal talent development and education to amuch broader audience.

    At the same time, the expectations of the different stakeholders differed substantially. Dr.Stefanie Zeitz, principal consultant for BTS who had interviewed several stakeholders duringthe initial stages of the Academy, highlighted the need to provide real value to justify thecommitment towards the network. SAPs clients, for example, appeared mainly interested inspecific transformation expertise and advice. As Shells Arthur Williamson commented:

    I need to demonstrate that I am bringing something tangible back to Shell. But tangibledoesnt necessarily mean a training course or a tool. It can be some kind of learning, forexample through a review of other company experiences, which I communicate back toour managers and which allows them to put that into context in future projects. There isalso intrinsic value in letting people look at what we are doing internally and commenton that.

    The Kickoff Meeting

    After two years of developing the idea of the BTA and identifying relevant network members,the long-awaited event had finally arrived on February 15-16, 2010. Thirty-four participantsfrom SAP, customers such as Daimler, Shell and Hilti as well as various academic institutionsmet at the Qube hotel in Heidelberg for an opening dinner on February 15 to formally kickoffthe Academy. The following day, the members met at SAPs headquarters in nearby Walldorf

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    to discuss member expectations, the role and vision of the Academy, relevant knowledgeareas and the master plan for the next actions, moderated by SAP executives (see Exhibit 4

    for the meeting agenda). During the morning, the BTA project team organized a project fairwith stalls covering the main content areas of the BTA to which members could provide theirfeedback (see Exhibit 5 for photos of the stalls with member feedback). Although thisfeedback helped refine what the Academy should and could not achieve, it also opened manynew questions. What were the criteria for defining success or failure for the initiative? Howwere the educational programs to be implemented in conjunction with universities? Despitethe generally positive experiences of the day, many hurdles remained. Dr. Axel Uhl reflected:

    We have to find this win-win-win situation for the practitioners, the universities, andinternally for SAP. The most challenging ones will be the practitioners. On top of what wehave already offered them, I will have to think about some additional incentives. I dont

    know what this would look like, but I think it needs to be related to recognition, inaddition to the sharing of feedback about what they are doing and the training. For theacademics, I think we are fine. We are offering them a lot of options. We have to put thatinto an individual plan with each of them, obtain agreement on that and then define areasonable and realistic role. We also have a few challenges within SAP. How canI manage the expectations of the management team? I will need to identify some quickwins to maintain their commitment. At the end, we need time to work on the deliverables,like setting up the scene for the handbook or the regular conferences. Someone needs toorganize this and there are also some challenges regarding the resources I have, whetherI can get the right people to support me, and so on.

    As Dr. Axel Uhl switched off the lights in the meeting room, he was certain that he had justtaken the first big step towards a transformational journey within SAP. However, just likeany other transformation project, he knew that the outcome would be uncertain.

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    Exhibit 1

    SAP Product and Service Portfolio

    Software Services

    Applications Platform Software-RelatedServicesProfessional Services

    and Other Services

    Solutions for LargeEnterprises

    Technology Platform Custom Development Consulting

    Solutions for SMEs Support Services Education

    SAP Business ObjectsPortfolio

    On-Demand SoftwareServices

    Managed Services

    Managed Services** Depending on form of contract

    Source: SAP Annual Reports.

    Exhibit 2a Revenues by Products & Services (in Millions of Euros)

    Revenue 2007 2008 2009

    Software revenue 3,407 3,606 2,606

    Support revenue 3,852 4,602 5,285

    Subscription and other software-related servicerevenue

    182 258 306

    Software and software-related service revenue 7,441 8,466 8,197

    Consulting revenue 2,221 2,498 2,074

    Training revenue 410 434 273

    Other service revenue 113 107 85

    Professional services and other service revenue 2,744 3,039 2,432

    Other revenue 71 70 42Total revenue 10,256 11,575 10,671

    Source: SAP Annual Reports.

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    Exhibit 2b

    Revenues by Region (in Millions of Euros)

    Total revenue by region* 2007 2008 2009

    Germany 2,005 2,193 2,027

    Rest of EMEA region 3,387 4,013 3,615

    EMEA region 5,392 6,206 5,642

    United States 2,717 2,890 2,695

    Rest of Americas region 872 990 925

    Americas region 3,589 3,880 3,620

    Japan 447 515 476

    Rest of Asia Pacific Japan region 828 974 932

    Asia Pacific Japan region 1,275 1,489 1,409

    Total revenue 10,256 11,575 10,671

    * Based on customer location.

    Source: SAP Annual Reports.

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    Exhibit 3

    Talent Development Needs for the BTS Engagement Model

    Target for 2010:25 Value Partnerships

    BTS Consultants: Internal development of staff External hiring of staff

    TrustedAdvisors

    Target for 2010:600 Consultants

    Growth in valuepartnerships

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    W r a p - u p , F

    e e d b a c

    k , O u t

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    o f f e e

    3 0 M i n

    P . M i t t e m e y e r

    T u e s

    d a y , F

    e b r u a r y

    1 6 t h

    , 2 0 1 0 ; L o c a

    t i o n :

    S A P

    , W a l

    l d o r

    f ( G e r m a n y ) ;

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    W D F 2 1 E v e n

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    D u r a

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    0 8 : 3

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    A g e n d a

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    L . G o l

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    0 8 . 4

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    R o l e o f B

    T A w

    i t h i n S A P B T C

    2 0 m

    i n

    L . G o l

    l e n i a

    0 9 : 0

    0 - 1

    0 : 1 5

    P r o

    j e c t F a i r

    7 5 m

    i n

    P r o j e c

    t T e a m

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    C o f

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    V i s i o n o f

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    k

    6 0 m

    i n

    P . M i t t e m e y e r

    1 2 : 0

    0 - 1

    3 : 0 0

    L u n c

    h

    6 0 m

    i n

    A l l

    1 3 : 0

    0

    1 3 . 3

    0

    P r e s e n t a

    t i o n

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    3 0 m

    i n

    T e a m s

    1 3 : 3

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    T h e m e M

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    A r e a s o f

    B u s

    i n e s s T r a n s

    f o r m a t

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    6 0 m

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    P . M i t t e m e y e r

    1 4 : 3

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    5

    C o f

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    1 5 m

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    A l l

    1 5 : 0

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    6 : 1 5

    M a s

    t e r P

    l a n

    7 5 m

    i n

    P . M i t t e m e y e r

    1 6 : 1

    5 - 1

    7 : 0 0

    W r a p - u p , F

    e e d b a c

    k , O u t

    l o o k , C

    o f f e e

    3 0 M i n

    P . M i t t e m e y e r

    S o u r c e :

    S A P

    .

  • 8/12/2019 Handout 7_SAP Transf From Product to Service Provider

    14/14

    DPO-215-E SAP's Transformation from a Product to a Service Provider

    14 IESE Business School-University of Navarra

    Exhibit 5

    Feedback from Project Fair

    Source: SAP.


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