How did they do that?

I have asked around because I was curious: curious to know how SAP came to dominate the energy industry. It seems that the industry was ripe for the picking and SAP made some very smart moves.

How ripe is ripe?

As I have alluded to before, after the oil price crash in the early 1980' s the industry went from a functional model to an asset-based model - everything was measured by "what's my return on assets?" As also mentioned before, everything became outsourced and IT investment slowed to a crawl. In the mid-1990's...many of the oil companies were still pushing on legacy mainframe systems. So several things began to work together to create SAP dominance:

Variable #1 - Y2K - The notion of rewriting mainframe-based legacy apps to avoid a system crash was not particularly appealing given advances in client-server technologies.



Variable #2 - The oil industry is highly cyclical and wanted to smoothing strategy. SAP sold the oil companies on the notion that they would be able to manage and replace much of the variable costs associated with outsourcing through investment in information systems. In the next upcycle..the oil companies would reap improved profits.


Variable#3 - Oil companies were very highly distributed as were the totality of their information systems...the were looking for a monolithic system structure.

The SAP play book


Variable #4 - SAP outflanked Oracle with the system integrators promising to not compete with them for deployments as became the case with Oracle...it is interesting that this partnering model alone added a level of risk to SAP as SI's faced many challenges effective timely and competent system installs.



Variable #5 - Business Process Reengineering became a fad and SAP played to it well.

It seems unlikely to find this type of confluence again. Nonetheless....SAP is entrenched...so is this an investment opportunity or investment pediment? Choose wisely.

The Old and the New

Yes...the oil companies operate on a decentralized basis...the legacy of the oil company is that it has, predominantly and rightly so, the mindset of the petroleum engineer. This combination of attributes has meant that many of the decisions and processes of oil companies have historically been architected and overseen and the business unit level. Near the drillbit or within the refinery. However, in the mid- to late-1990's the seeds of change were planted. The oil companies bought SAP and, as a result, significant investments were made in SAP. The investments were so substantial that the CIO took on a new level of import within the enterprise.

General information technology was previously viewed as something that was outsourced. It was not petroleum engineering. As the wheels of SAP began to turn, the reliance on the CIO began to increase. As such, there began a centralization of decision making regarding things that were "IT." Software solutions that may have been never been seen by corporate are now becoming the domain of corporate. CIO's are asking..."what are our business processes and what can SAP do and not do?" This is where some of the investment opportunity resides.

I think we are going to see continued empowerment of the CIO. I think we are going to see near-term definition of gaps in the general IT stack as it relates to general business process and a search for solutions to fill those gaps. The question then becomes will IT budgeting still reflect the apprehension of a volatile industry or can it plow new ground?