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PAC Webinar Series:The Global SAPServices MarketOctober 2nd 2008

Hosted by:

JC JungSVP, ConsultingServices

Peter RussoSenior Consultant &SAP Practice Lead

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Company OverviewCompany Overview

Founded by Pierre Audoin in 1976 (Paris). Serving the IT industry forover 30 years.

Global coverage: PAC with its partners has 160 professionals in 16offices covering the worldwide IT market.

Focus on the software and IT services industry: advising IT servicesand software suppliers, IT users, and public agencies around the world.

An integrated approach: in-depth markets / verticals / competitiveresearch available off-the-shelf, plus marketing & consulting services.

For 10 years, PAC has provided deep country analysis on the SAP-relatedConsulting Services Markets. In 2008, PAC launched a practice comprised

of our SAP Services specialists across the globe to offer off-the-shelfanalysis of this market, analyst insights and consulting services

Pierre AudoinFounder &Chairman ofSupervisoryBoard

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The SAP Services Research Practice Segmentation

In the SAP Services Research Practice, we consider “Consulting Services” (whichis a portion of our Project Services segment) related to SAP applications

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Placing SAP Consulting Services into Context!

*excluding Hyperion and Business Objects-related Consultingservices; in Oracle CS and SAP CS, respectively

The Worldwide Business ApplicationConsulting Services Market in 2008

Worldwide Business ApplicationConsulting Services (CS) represents a$175 billion market (7% growth,07/08 forecast).

SAP CS represents the largestbusiness application platform forconsulting services, at $28 billion in2008.

Oracle CS is the 2nd largest platformat $13 billion thanks to its aggressiveacquisition strategy.

Custom Business ApplicationDevelopment is both an opportunity forIT Services suppliers to build customtailored solutions, as well as anopportunity to offer packaged solutionsthrough industry solutions, eSOA,xApps, etc.

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Market Drivers in SAP Consulting Services

Upgrades: This majority of workwill essentially come and go by2012 until the next wave oftechnology and upgrades begin.

Those IT suppliers who actquickly in SAP upgrades maygain incremental SAP-related ITservices business for the nextdecade!

“Openness of the SAP system”: As a result of R/3’s inflexibilities came SOA, promoted by SAP withNetweaver… then came SaaS, not promoted by SAP at first, which has taken application flexibility toyet another level…

SAP is increasingly broader and outside of its “sand-box” – which has opened up projectopportunities for SAP CS suppliers that were too complex/cost-prohibitive to consider in the past!

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Market Opportunities in SAP Consulting Services

“Services Productization”: Customerpreference is increasingly moving towardssolutions that have a clearly defined cost,time-to-benefit and business knowledge aroundSAP products.

SOA: While SOA project deal sizes are stillrelatively small (prototypes or first SOApilots), PAC sees an increasing demand forSOA projects as part of a company’s SAPsystem development. While the concept isclearer, the ROI is still uncertain. In PAC’sopinion, SOA will not boost the markettremendously (from a volume perspective)until 2009/10.

Broadening of SAP: into the mid-market,industry solutions, BI, business users,collaboration, new geographies, etc., etc.

Del

iver

yM

arke

ting

Repeatability / Standardization Methodology Tools

Pre-configuredSW Solutions

KnowledgeManagement

Offshore / Nearshore

Results / Perf.Relation

ProcessManagement

Portfolio / Product M.

Components / Modules Price Metrics

CalculationModels

Main Characteristics ofService Products

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Market Downers in SAP Consulting Services

Competition in industries: especially with Oracle in the Public sector, Banking, Retail andUtilities

SAP skills & resources issues: a result of SAP’s success and expansion of products; alongwith lack of development of domestic resources; varies by geography or experience level(especially business architects!) --- but PAC sees positive trends, as well as an increasedvalue place into IT services suppliers who can meet current technology needs!

Is SAP part of the next wave?: Predicting what the next platform is impossible, but it is clearthat new innovations are coming in the form of SOA as well as SaaS/cloud computing

Financial Services Crisis: While SAP had a relatively smaller position in this sector; it wouldbe naive at this point to believe that there will be no negative impact on the SAP CS business…

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Regional Differences: a Quantitative View

While in general SAP products are a global technology, their market penetration,positioning, competition and use vary greatly from region to region and country by country…requiring a local understanding of the SAP Consulting Services markets!

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SAP Upgrades

USA

Customer Viewpoints & Demand While technical upgrades have been a fast-growing segment,

PAC has forecasted that the coming wave of functional andstrategic upgrades will arrive 8 months later than in Germany.

The high degree of uncertainty in the U.S. economy, has caused manycompanies to reduce risks and take a technical upgrade to avoidcustom maintenance costs.

Challenges/Approaches for Suppliers Must demonstrate value of the SAP industry solutions to large

enterprise and show a clear path to SOA and ROI. “Cost of Running SAP” approaches in order to upgrade

customers.

Germany

Customer Viewpoints & Demand SAP is the predominant technology choice, and end-users

typically follow the vendor’s lead. The upgrade from SAP R/3 to SAP ERP 6.0 is the fastest-growing

market segment in the German SAP CS segment. Other large countries are forecasted to trail German by ~8 to 12

months later.

Challenges/Approaches for Suppliers Successful use of “Upgrade Factories” (repeatable processes

and low-cost resources) to reduce project times Suppliers must convince they are the right choice for

functional/strategic portions of an upgrade

Brazil

Customer Viewpoints & Demand The performance and stability of R/3 4.7 has been more than

adequate for Brazilian CIOs. The value of SOA is not altogether clear.

Challenges/Approaches for Suppliers Supporting customers to comply with the “Electronic Invoice Project“,

a major e-Gov initiative, which may drive larger users to upgrade tothe ECC 6.0.

There is still a need to clearly explain the SOA concept.

India

Customer Viewpoints & Demand Approximately 50-60% of SAP customers are net new customers with

no upgrade needs. More so than avoiding “custom maintenance,” customers see an

upgrade as necessity to supporting growth.

Challenges/Approaches for Suppliers SOA road mapping to Indian customers is key, as they see SOA as

the link to smoother business innovation. High-quality SAP resources for the domestic Indian market are at

times difficult to source since they are in competition for the use ofexternal Indian SAP resources that typically receive much higherrates.

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SOA

France

Customer Viewpoints & Demand The questions from typical CIO’s have moved from “what?”

to “how?” related to SOA; and are particularly focused on BPMand MDM/data integration.

SAP is now seen in closer terms to IBM, Oracle and Microsoft:as a platform provider.

Challenges/Approaches for Suppliers Use of Netweaver as an integration platform by French

customers is still quite limited compared to IBM or BEA/Oracle.

Czech Republic

Customer Viewpoints & Demand In utilities, CEZ Group is an SAP shop and leading the SOA market for

Eastern Europe as a whole. A project beginning in 2003 to build nearlyall required functionality through the SAP system is now a full SOA /Netweaver project expected to last until 2011/12.

The CEZ Group SAP system will be replicated across itsoperations in Bulgaria, Romania, Poland and Slovenia, havingimplications on SOA development across Eastern Europe!

Challenges/Approaches for Suppliers SAP itself is heavily involved with the CEZ Group project; the SI

ecosystem itself is rather immature on Netweaver/SOA, lackingunderstanding and skills.

Outside of utilities and the public sector, there are few other largeenterprises to target with SOA.

Germany

Customer Viewpoints & Demand The enlargement of NetWeaver to include BPM has created the

belief that the implementation of a SOA strategy will be faster. SAP is seen more and more as a solution platform on which

customers as well as service providers develop additional applicationsand solutions (for example, xApps).

Challenges/Approaches for Suppliers Through the eSOA strategy, SAP-related custom development will be

one of the fastest-growing market segments.

Japan

Customer Viewpoints & Demand Custom development is abundant in Japanese organizations and SOA

speaks to the need to integrate as well as standardize portions of anIT system on packaged solutions.

Customers see SOA as a way to restructure themselves forfurther growth and to streamline their business processes.

Challenges/Approaches for Suppliers There are now over 25 Netweaver partners in Japan, as well as a

co-innovation lab in Tokyo to demonstrate the possibilities ofintegrating heterogeneous systems on a SOA platform.

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Offshore Services

USA

Customer Viewpoints & Demand Most mature end customer for offshore services. PAC estimates that ~26-27% of SAP resources applied to U.S.

SAP projects are offshore resources.

Challenges/Approaches for Suppliers Suppliers sometimes push the limits of what is achievable from

offshore resources in favor of lower costs. In adopting the offshore model so strongly, many suppliers now

lack the necessary domestic resources required for businessprocess consulting and orchestration, project management, etc.

Japan

Customer Viewpoints & Demand Local knowledge is a key asset in managing typically

heterogeneous IT systems with a fair amount of customdevelopment and local packages (Glovia-C (Fujitsu), Explanner(NEC), Gemplanet (Hitchi), SuperStream (SSJ), OBIC/SCAW, andSMILEie, among others…

Challenges/Approaches for Suppliers Suppliers continue to develop offshore service delivery capabilities to

overcome the shortage of skills in Japan. However, we do not expectoffshore services to reach the same level than in the other countries;due to cultural and language issues.

France

Customer Viewpoints & Demand The French culture is more oriented toward local providers, due

to the lack of knowledge to manage offshore projects efficiently; thestrong need for local business expertise, seldom available in offshorehubs; and language.

Challenges/Approaches for Suppliers Typically, only the more technical tasks are performed offshore for

French customers (ABAP development, infrastructure services,technical administration, etc.).

Germany

Customer Viewpoints & Demand Acceptance of offshore has increased, especially with

multinationals, but still lags the U.S. and UK. Medium-sizedcompanies are more reluctant, while SMBs typically refuses the use ofoffshore resources.

Challenges/Approaches for Suppliers Increasingly, IT services providers offer near-shore (mainly

Eastern Europe) resources, which German customers are more opento.

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The Worldwide Leaders in SAP Consulting Services

Positioning of the Leading SAP Consulting Services Suppliers Worldwide - in Euro

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The Worldwide Leaders in SAP Consulting Services

Positioning of the Leading SAP Consulting Services Suppliers Worldwide - in US$

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Final Takeaways

Continues to be the largest and one of the highest growing “application services”segments

While the financial crisis will affect all areas of IT spending, PAC still expects SAPConsulting Services to grow above overall IT project services Forecasted to grow yr/yr by 8.8% (vs 5.7% for Project Services) this year and6.5% next year (vs 3.8% for Project Services)

While SAP is a “global technology”; the market opportunities and approach to deliveringthis solution to each market is quite different from country-to-country

The market is still just at the beginning of SOA and its impact on industry solutions, inparticular: more system openness will drive more related consulting services

There has been a convergence of customer preference and supplier’s needs forefficiency to offer more “productize services” : technical SAP upgrades have been agreat example for the whole industry

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SAP Program Research Schedule

Delivered Reports and Research

June SAP Services Quarterly: “SAP Upgrades” Commentaries: SAP Sapphire (Berlin and Orlando)

July SAP Consulting Services Market Report: UK SAP Consulting Services: Worldwide Market Figures by country (over 50 country and regional views!)

August SAP Consulting Services Market Report: Germany SAP Consulting Services Market Report: USA SAP Consulting Services Supplier Positioning & Analysis: UK SAP Consulting Services Supplier Positioning & Analysis: France

September SAP Consulting Services Market Report: France SAP Consulting Services Supplier Positioning & Analysis: Germany SAP Consulting Services Market Report: Japan

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Scheduled Reports and Research

October SAP Consulting Services Supplier Positioning & Analysis: USA SAP Consulting Services Supplier Positioning & Analysis: Japan SAP Consulting Services Market Report: Worldwide SAP Consulting Services Market Report: EMEA Region SAP Consulting Services Market Report: Americas Region SAP Consulting Services Market Report: APAC Region SAP Services Quarterly: “The SAP Skills Ecosystem”

December SAP Services Quarterly: TBD Commentaries: Preparing for 2009 - including contributions from all regions looking back at the performance of

2008 and what to expect in 2009…

SAP Program Research Schedule (subject to change)

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Our Global SAP Services Leaders

PAC covers all regions in the world

USA/Global:Peter Russo -

Practice LeaderJC Jung

UK: Rajeena BrarFrance: Eric MenardGermany: Klaus HolzhauserRussia: George Mironescu

LATAM:Ruy Mendes

APAC:Dane Anderson

+25 experts at PAC are looking after the SAP Market Worldwide

Casablanca (New)Beijing (New)

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Helping IT Suppliers Capitalize on thisCompetitive Growth Segment

Membership includes: “The SAP Consulting Services Report by PAC”: Our annual SAP-related Consulting Services market review,

including global and local country market-sizing, supplier rankings and qualitative market trends analysis. Dedicatedcountry reports include the US, UK, France, Germany & Japan; analysis on emerging regions and quantitative figures on+30 countries.

SAP Services Quarterly: PAC global reports on specialized topics. Current reports include: The SAP Skills Ecosystem,SAP Upgrades and other to be determined by market activities and customer feedback.

Analyst Time: Access to any of the +25 PAC consultants around the globe covering the SAP market in order to providelocalized advice, custom research, presentations, short-answer/reports.

Major event commentaries: Produced during the year following PAC’s attendance of major SAP events, including:Sapphire (US and Europe), TechEd, SAP Influencer Event, etc. PAC will also host several international web-casts forSAP Services Practice members only.

Our research reports: www.pac-online.com/sap Our team blog: www.feedingthesapecosystem.com

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For more information PAC’s SAPresearch, please contact:GlobalPeter Russo - Senior Consultant, Practice Lead

Email: p.russo@pacus-online.comTel: +1 646 277 7258

How to Join and for Additional Information?

Thank you for your participation !