On a windy April evening in Walldorf, Germany, Henning Kagermann took a sip of his tea and
picked up the 60-page document lying on his desk. Several months earlier, Kagermann, CEO of
SAP AG, had tasked his Corporate Strategy Group with preparing a strategic analysis, informally
nicknamed the “Sun-Tzu document” in deference to the legendary Chinese general. It outlined
the strategic opportunities and challenges that SAP should expect to face between 2006 and
2010, and examined the prevailing forces shaping the enterprise software industry in 2006:
technological change, consolidation, and shifting customer needs.
Kagermann believed that emerging Internet-based technologies and standards known collectively
as “Web services” soon would transform the $79.8 billion enterprise software applications
industry, in which SAP held the leading market position.1
Although sales of SAP’s existing
products had begun to rebound in 2004 after a multi-year slowdown, Kagermann had committed
SAP to deploy new Web services-based technology on a massive scale by the end of 2007. (See
Exhibit 1 for an overview of SAP’s financial performance.) He also had announced several
growth initiatives that hinged on the implementation of SAP’s recently defined Web services
strategy, which was based on a framework SAP called the Enterprise Services Architecture
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