Firm commitment to innovation
SAP’s success depends on delivering innovative solutions that truly improve customers’ business processes. That is why continued development of its solution offerings was again the Company’s trump card in 2003. SAP has resolved not to allow any cost-containment measures to jeopardize its strength as an innovator. R&D expenses (excluding expenses for stock-based compensation and acquisition-related charges) increased 6% to €951 million despite the Company’s pursuit of operating margin improvement. Underscoring SAP’s commitment to development, the portion of its total revenue that the Company spent on R&D (excluding expenses for stock-based compensation and acquisition-related charges) rose to 13.5% (2002: 12.1%) and, measured in FTEs, the number of employees working in development teams rose 11% in 2003 to 8,854.

As in previous years, the majority of SAP’s software development work took place in Germany, where 68% of R&D FTEs were located at the end of 2003. SAP also maintains development laboratories in the United States, Canada, Bulgaria, France, India, Israel, China, and Japan. The facilities in China and India expanded especially rapidly in 2003. Total FTE developer headcount in those two countries climbed 56% to 788.

Technology and applications share the limelight
SAP’s development efforts focused on the following areas:

• In Enterprise Services Architecture, SAP is introducing a reference architecture for business applications that companies can use to rapidly and flexibly map and coordinate business processes. SAP thus demonstrates how Web services can be deployed as the flexible basis for business applications. The technical foundation of Enterprise Services Architecture is SAP NetWeaver.
• SAP began shipping a new version of mySAP Customer Relationship Management (mySAP CRM). In one of the largest development projects in the Company’s history and working closely with customers in a range of industries, SAP enhanced the solution with a host of functions. mySAP CRM 4.0 provides more than 280 end-to-end business processes that are tailored to the different requirements of individual industries. The new version also offers a broad spectrum of new and enhanced functions. Its modular construction enables customers to implement and expand mySAP CRM in stages, which means they can achieve a more rapid return on investment (ROI).
• With the new version of mySAP Supply Chain Management (mySAP SCM), SAP offers over 20 new business processes and 30 enhancements to tried and tested industry processes. This enables companies in the discrete manufacturing, process, and consumer goods industries to plan and steer their supply chain networks more efficiently, integrate processes with other business processes, and improve collaboration with suppliers, partners, and customers. Among the most important features of the new version of mySAP SCM are SAP Advanced Planning and Optimization (SAP APO), SAP Event Management (SAP EM), and the new SAP Inventory Collaboration Hub. SAP Inventory Collaboration Hub is a Web-based platform on which companies and their suppliers work together to monitor their warehouse stock and run their ordering processes.
• At the SAPPHIRE ’03 customer and partner event in Orlando, Florida, SAP announced that it would be expanding its SAP Service Management solution. This solution gives companies in the discrete manufacturing industry – and other industries with similar requirements – all-around support for resource-intensive service and maintenance tasks.
• SAP launched a new version of its portal solution SAP Enterprise Portal (SAP EP). A wide range of functional enhancements in this new version help employees and customers communicate more easily with colleagues and business partners. SAP EP integrates information from SAP and other applications, which facilitates the connection of diverse systems. This reduces maintenance work and thus the total cost of ownership.
• At the SAP TechEd European technology conference, SAP presented SAP Master Data Management (SAP MDM). SAP MDM is a key component of SAP NetWeaver that enables customers to aggregate and harmonize master data across the company and distribute it to all employees and business partners.
• In September 2003, the Company launched the SAP Developer Network at SAP TechEd in the United States. In the future, over a million users and developers will be able to exchange up-to-date knowledge, news, and development tools for SAP solutions on this technology forum. The focus will be on realizing profitable solutions. The network, which is aligned to SAP NetWeaver, also offers detailed, technical background reports and documentation, Web training, test systems, forums on specialist topics, and news of upcoming events.
• For the first time, SAP hosted a European innovation conference and presented its latest technological advances. The innovation report, SAP Makes Innovation Happen, describes the innovative concepts that are already part of SAP’s business applications. The report also introduces technologies that will help customers to achieve business success in the future.

Recognition for SAP’s technical achievements
The new SAP solutions also won recognition from external experts:

• U.S. consulting provider Frost & Sullivan awarded SAP the Market Engineering Award for product innovation in the European market for mySAP SCM. The analysts compared the SCM solutions of various vendors. The decisive criteria for the award were the added value that solutions offer to companies and the speed with which companies obtain a return on their investment. According to Frost & Sullivan, the SAP Event Management component of mySAP SCM played a key role in the award.
• SAP Business Information Warehouse (SAP BW), the data warehousing and analysis component in SAP Business Intelligence, achieved first place in the TechRanking for business intelligence solutions of market researcher Forrester Research. Forrester Research carried out an independent assessment of the leading business intelligence solutions on the market, based on 500 criteria. In three of the 10 categories examined, Forrester Research rated the SAP solution as the leading product. With SAP Business Intelligence, companies can aggregate and evaluate information from heterogeneous systems and data sources.
• Analysts and customers alike reported that SAP’s CRM solution meets the requirement for rapid ROI. For example, a study by U.S. consultants Peppers & Rogers Group proved the cost-efficiency of mySAP CRM. The study calculated an internal ROI of 35% for Waters Corporation, a United States-based company, over a period of 4.5 years. Another example is CJ Corp., a food manufacturer based in the Republic of Korea that has deployed mySAP CRM to support sales and marketing processes. Peppers & Rogers Group expects CJ Corp. to achieve an internal ROI of 15% by 2005. Tata Telecom Ltd., of India, installed mySAP CRM – among other things to substantially boost revenue. Peppers & Rogers Group anticipates this investment will generate an internal return of 129% by the end of fiscal year 2005.