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Software maker SAP is expecting much from its channel in the next 18 months.

The ERP (enterprise resource planning) company expects to make the channel its primary route to market as it charges full-force into the small and midsized enterprise space and looks to beat competitors to the 92.3 percent of the market it regards as open to an ERP solution.

Under a redesigned go-to-market strategy with the SME, SAP is relying on its partners to both extend its reach into the segmented marketplace and make its All-in-One and Business One applications relevant to customers in micro-vertical industries, where business process functionality will be the products’ differentiator, SAP executives and partners said.

To enable the strategy, SAP launched a hybrid direct-indirect channel program whereby direct sales resources will be responsible for channel success under a single organization and account executives will be compensated equally regardless of the chosen channel.

The company also announced 14 new or improved channel tools and programs, including the full deployment of its PartnerEdge structure, to reward and manage a growing partner roster.

SAP to offer on-demand CRM. Click here to read more.

The company is also taking steps to ensure that the 94 account executives in its SME unit take advantage of partners—including a multimillion dollar compensation program for channel sales and tools—and programs and leverage channel solutions and resellers when needed, executives said.

“This is a huge shift for SAP,” said Donna Troy, director of global indirect channels at SAP. “The market segment of large versus small and medium-sized enterprises required a coverage model focused on SMEs, with partners as its cornerstone.

“Moving to a hybrid strategy will give us better coverage and opportunity in places we could never reach … [They] are our sales force.”

Under the channel model, ISV communities will build micro-vertical solutions for All-in-One and add-on solutions for Business One to make industry specific business process knowledge the product’s differentiator.

VARs will push the product through the market, aided by SAP’s in-house sales organizations.

SAP also raised the ceiling on accounts available for partners from businesses with under $200 million in revenue to those under $1.5 billion.

“SAP has opened the door for partners in the SME to a whole new host of opportunities,” said John Haddad, Managing Director of Small and Medium Enterprise at IDS Scheer, a business process management firm and All-in-One ISV.

“They are allowing us to engage in accounts we never would have had access to, with account executives that brings more value to our prospects than just reselling the product.”

More resources for an exclusive group.

The company is recruiting new partner locations for its Business One program (278 in 2005) and new vertical solutions from partners for the All-in-One program (48 for a total of 550 in 2005).

Channel executives are careful to note that they would prefer that existing partners open new locations or vertical practices before recruiting new foot soldiers.

“The fewer partners, the better as far as a management issue,” said Dan Kraus. “It’s fewer resources, fewer personalities, fewer things to worry about from a business planning perspective. We always want to think about helping a partner put feet on the street in a new location or a new vertical before we go after a new partner.”

SAP has already dropped partners from the program, including eight from its original 16 Business One Resellers. The company expects partners to acquire a customer within 90 to 120 days of signing with the program and have certain resources in place or progressing by the six month mark, or risk being expelled, Kraus said.

Because of the limited channel strategy and the equal compensation measures for in-house sales, partners said infighting and channel conflict are nonexistent at SAP.

The program also requires more from SAP to allow partners to develop and sell, Troy said. SAP introduced 10 programs in 2005, including a skeleton of PartnerEdge, along with the overall rewards and management infrastructure for the channel and a new channel portal.

In 2006 the company expects to release 14 new or enhanced programs, localized partner portals, simplified partner agreements, five training and education programs, and support programs.

Some, such as the partner agreements, have been part of the learning curve for SAP channel executives, said Ralf Mehnert-Meland, Director of Business Development for SAP’s Business One Unit.

“We had a system that landed 747s beautifully, but we were trying to land Piper Cubs on the same runway,” Mehnert-Meland said.

“In the early stages we had 60-page partner agreements before we realized these partners might not have a legal department to read through this. The agreement is now seven pages. Customer agreements were 30 pages; they’re now four.”

Click here to read how SAP’s vertical market push has increased its partner roster.

“We’ve tried to instill incredible flexibility and nimbleness into this channel,” he added.

Scott McMahon, a partner at Apollo Consulting, a business process management consultant and Business One reseller, said “One of the good things we’ve seen from the program is that they are actually delivering. Too often people announce that they’re doing x, y and z, and you wait until you just forget about it. They’ve delivered and we can expect that they would continue to deliver.”

Among the changes to the program outlined for 2006, McMahon is most excited about improvements in communication.

“The access to information, knowing who does what, and just finding out about products and being able to partner with each other will create opportunity,” he said.