Perceiving Innovation: Who ‘Makes’ SAP Labs India and How?

Abstract

Systemanalyse und Programmentwicklung; Systems, Applications & Products in Data Processing (SAP) Labs India is a very good example of innovativeness in products and attractiveness as an employer in a rapidly changing business environment. Especially the lack of an innovative culture in SAP Germany is compensated by SAP Labs India. The purpose of this study is to understand how SAP Labs India employees and scholars are perceiving innovation processes to which they contribute. A case study was conducted by using public available blog entries and discussing these within the concepts of perceptions, innovation and nudging. Being close to customers and feeling self-empowered are the consensus points; the latter one is reached by ‘nudge’. These perceptions can give new insights on successful innovation management, especially in absence of hierarchies. Furthermore, the study gives new ideas on how nudging is used in an innovative process.

Keywords

Innovation nudging perceptions organization dynamic capabilities

Introduction

Forty-four years after its establishment, SAP is a worldwide leading firm focusing on business software solutions. Founded by five former International Business Machines Corporation (IBM) employees, SAP aimed the introduction of standardized real time data processing software for businesses (Meissner, 1997). Due to its international customers (Plattner, Scheer, Wendt & Morrow, 2000), SAP was challenged to think international, act local and provide solutions for individual human beings by focusing on the needs of individuals, although most of its customers are still corporate customers (Hagel & Brown, 2008). SAP’s overseas expansion (including India in 1994) gained importance after the transformation from mainframe computers to personal computers (PCs) (Srinivasan & Neumann, 2009). Around the same time, the need for localization emerged due to the language barriers and different business models shaping different needs. For India, the need for improvement and altering of the products did not decrease even after many years (Srinivasan & Neumann, 2009). This was mainly because of the rapid changes in the business environment of India.

An overseas research and development (R&D) centre, SAP Labs India, was established in 1998 (SAP, 2016) and currently has 6,500 employees. Its focus is on product localization with the target of a radical simplification of core solutions. It was ranked as the fifth best company to work for in India (The Economic Times, 2015) and reached total revenues of €205 Million in 2014 (SAP, 2015). However, not much has been done to analyze the perspectives of individuals related to SAP Labs India—what their perception of innovation is and what makes their experience unique are black boxes in the managerial economics literature. Based on public blog entries of SAP Labs India employees and scholars, a case study was conducted to be discussed with the concepts of innovation, knowledge and nudging.

The aim of the case study is to analyze how innovation is perceived by those who are a part of it. This case study supports decision-makers in working towards perceptions, and contributes to the literature by bringing together the concepts of knowledge, innovation and nudging in the interpretational framework of the case study. After a short theoretical background, the methodology is summarized, and followed by the case study. Finally, the case study is discussed and a conclusion is provided.

Theoretical Background

Contingency in management goes back to the contributions of Woodward (1958, 1965), Lawrence and Lorsh (1967) and Perrow (1967). It was motivated by asking for leadership behaviour in different situations, and found out that this is contingent to the environmental conditions (Baraz & Sakar, 2011). From the point of view of managerial economics, this implies that there is no perfect model of organization which fits in every situation. A distinguishable feature of the firms is whether they have an organic or a mechanistic organization structure (Baraz & Sakar, 2011; Burns & Stalker, 1994 [1961]). A mechanistic organization is characterized with strong hierarchies, specialized functions and formalized procedures (Mechanistic Organization, 2016) which cannot adapt well to rapid change. An organic organization structure is more competent in an environment of rapid change and high competition, whereas a mechanistic organization is suitable in a stable environment with less competition (Baraz & Sakar, 2011).

A relevant issue for an organic organization is to have the least hierarchy. Flat hierarchies (Anderson & King, 1993; Burns & Stalker, 1994 [1961]; Pillinger & West, 1995) and more autonomy for individuals and teams (West & Altink, 1996) can be more effective in managing innovation. However, this may end up in a crisis of leadership within the firm (Greiner, 1972). Greiner (1972) suggests a strong leadership to solve this issue. A recent contribution by Schreyögg and Kliesch-Eberl (2007) suggests a dual model based on two parallel processes of developing organizational capabilities and problem-solving mechanisms.

Recent developments in behavioural economics make other powerful alternatives possible. An interesting development is the emergence of the concept of nudging, defined as ‘any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives’ (Thaler & Sunstein, 2008, p. 6). This concept ‘excludes legislation, regulation and interventions that alter economic incentives’ (Marteau, Oglivie, Roland, Suhrcke & Kelly, 2011, p. 263).

Nudging in innovation context is a recent issue (Potts & Morrison, 2009) which deserves more attention. Nudging can be applied to firms which are on the way of becoming organic organizations, just like SAP Labs India did after 2010. An important distinction for this phase can be the focus on knowledge generation. Knowledge-intensive firms tend to have a non-marketlike character which builds upon ‘encouraging people to work collectively toward shared goals and values rather than more restrictively, within their narrow self interests’ (Mintzberg, Lampel, Quinn & Ghoshal, 2003, p. 308) and assigns management the task to embed trust (Mintzberg et al., 2003). In a highly competitive, rapidly changing business environment, discovery of new technological knowledge is central for the competitive advantage of the firm (Witt, 2011). Hayek (2002 [1968]) describes competition as a discovery procedure and emphasizes the unpredictability of its results. Market processes deliver the information on what can be considered as a good, which goods are valuable and what is worth searching for (Hayek, 2002 [1968]).

Discovery of new knowledge leads to the emergence of unpredictable novelties in form of new products and new technologies. In the sense of its unpredictable outcomes, innovation is an example of the spontaneous order (Potts, 2014), resulting from human action, but not from human design (Hayek, 1978). From the perspective of management, innovation itself cannot be planned, but the behavioural rules for the discovery of new knowledge can emerge from the evolution of a firm organization. Understanding how the contributors of an innovative process perceive innovation can support the innovation management by giving new insights.

Methodology

A narrative case study aims to capture the human dimension of an experience over time and involves systematic gathering and analyzing of people’s stories, relying on the reconstructions of experiences in human mind and reflecting different layers of understandings about a person and how they create change (Etherington, 2011). Making use of online communities is a new way of conducting a case study, often described as online word of mouth, electronic word of mouth or word of mouse (Breazeale, 2009). Word of mouth can originate from customers or employees, and it can be positive or negative (Harris & Ogbonna, 2012). Using narratives for the analysis of innovation is another new topic in the literature (Bartel & Garud, 2009; Borins, 2010) and builds on the role of narratives for creation of acceptable behavioural rules for sharing of tacit knowledge and creating a generative memory for the organization, in order to shape the future innovation processes (Bartel & Garud, 2009).

The Case Study

The case study consists of narratives of SAP Labs India employees and scholars in the previous two years. After a high employee dissatisfaction around 2009, which included complaints about the management in the internal blog and a scientific survey on increased health problems of employees (Kumari, Pandey & Khanaka, 2010), the newly appointed Managing Director Ferose tried to decentralize the innovation process by giving the employees freedom to search for new things, and listening to them about their complaints beginning in April 2010 (Radjou, Prabhu & Ahuja, 2013). Embedding trust, giving responsibility and expecting the employees to be more innovative—this is what can be described as a ‘nudge’ strategy. The choice of the time period corresponds to the time after changes in the organizational structure from hierarchical to flexible as described. The narratives were selected from SAP Community Network (SCN). Relevant was the content describing SAP Labs India and innovation, as well as relating these to the personal experiences of authors. The latter point is in line with Drucker’s (2008) suggestion for managerial economics to focus on perceptions. Some blog entries with a merely informative character were not considered. Although SCN is a corporate platform, it is open for everyone.

Six different persons and a team are considered in the case study:

The Manager: Dilipkumar Khandelwal (Basu, 2015) is the vice president of SAP Labs India since August 2014. As his biggest innovation, he describes how he and his team worked to provide a better customer experience. This has taught him how important it is to contribute to customers’ success. Being in touch with customers is important for focusing on the big picture, which determines the success of a business from his point of view. In his own blog article, Khandelwal (2014) emphasizes the changed role of users from end users to ‘empowered users’ who have clear wants. The developer team is expected to understand and analyze these wants. Important for innovations are that they are bottom-up organized day-to-day activities.

The Coder: Sindhuja Palla (Palla, 2015) is a scholar at SAP Labs India who has participated at a so-called ‘hackathon’ (an event to develop software collaboratively) organized by SAP Labs India. Being part of a team without much knowledge in SAP high-performance analytic appliance (SAP HANA), their idea to simplify SmartShopping got accepted for the challenge. During the coding marathon, his team could only work a couple of hours until they faced authorization issues with SAP HANA and could not continue. However, he remembers the event with great enthusiasm. He says that the experience is what matters, and what he learned from the event is ‘to know the things to be focused on’.

The Kick-boxer: Preeti Singh (Baur, 2016) is a software developer focusing on procurement processes for the customers. With a degree in computer science, she initially intended to join the Indian Army. Her expectancies were ‘motivation, mental and physical strength, dedication and job satisfaction’. However, she found her way in a vocational training programme of SAP Labs India combining work experience and weekend classes for a master’s degree. Preeti initially perceived IT sector for ‘boring and senseless’. Her job as a software developer is mainly attractive for her due to the inventiveness. She is happy that SAP Labs India gives her freedom to seek for new things. Kick-box classes offered by SAP Labs India are also an important part of her experience, which makes her a stronger person.

The Enthusiast: Geet Rathi (Rathi, 2014) is an associate developer at SAP Labs India. He describes his personal experience of the transmission from a university student to an employee. When he graduated, he knew the concepts of ‘career’, ‘industry’ and ‘work-life balance’ only theoretically. He thinks it is important that the first time a newly graduated employee gets to know these terms must be ‘an authentic experience’. For the authenticity, he introduces the concepts of trust and responsibility in his own perception of SAP Labs India. SAP Labs India gives its employees responsibility and trusts them, he says. According to him, it is these two concepts which make the employees respect the core values of SAP.

The Scholar: Akshatha S. (Akshatha, 2014) is a participant of the SAP scholar programme, which supports talented students to pursue their postgraduate education and gain work experience in SAP Labs India. The practical phases of the scholar programme enable the participants to work with different teams to learn the company technologies. According to Akshatha, gaining experience in different fields deepens the technical and functional knowledge. She emphasizes the role of design thinking workshops, which ‘opened up a new channel of thinking in young minds which comes out as innovation’. Events coming out of these workshops have an encouraging character for innovation.

The Product Manager: Muthu Ranganathan is principal product manager at SAP Labs India. In his blog article, he talks about Bangalore Apphaus Bazaar (Ranganathan, 2014). Apphaus is a flexible working space without separate rooms, in which everything (including the walls) can be moved flexibly. This concept uses office flexibility as a supporting element to innovations. Apphaus Bazaar is a localization of this concept for India, going back to the notion of jugaad—creatively working on new things with limited resources (Radjou et al., 2013). He describes it as a place nurturing innovation and experiments, where failure is allowed and there are no hierarchical room arrangements for seniors. According to Ranganathan, the concept is a ‘great wake up call for thinking different’.

The Pattern Recognizers: Krishna Kumar and his team of developers won the SAP TechEd Bangalore 2013 Demo Jam trophy, and were interviewed on the product that brought them the trophy (Mitra, 2014). The story of the trophy winning product is similar to the story of the first SAP software programme: they were thinking of the long waiting times at the toll booths especially during holiday seasons, and came to the idea to develop an app which simplifies toll collection. This is a similar way of pattern recognition which led the SAP founders come to the idea that standardized business software in real time data processing was needed to fulfil needs of different customers. The development team was heterogeneous, each team member bringing ‘a unique perspective to the table’ ensuring team work. It was their third attempt to win a Demo Jam trophy, with which they were finally successful.

Drucker (2008) pointed out that management must work more to train the perceptions. The case study reflects both the heterogeneity of human capital in SAP Labs India covering a wide range both in terms of employee function and personal characteristics and similarities in the narratives on the role of innovations and how they are perceived.

Discussion

The case study consisted of six different persons and a team, who perceived the innovation processes of SAP Labs India at different stages. They come from different backgrounds and perceive different aspects of SAP’s corporate culture, which inspires them to be innovative.

One consensus in narratives of the case study is the importance of the interaction with customers. Contributing to ‘customers’ success’ (case 1), ‘inventiveness’ for customers (cases 2 & 3), being part of an ‘authentic experience’ (cases 4, 5 & 6) and pattern recognition for innovating (case 7) are parts of every day interactions, building a competitive advantage for adapting to situations where customer needs differ or change quickly. Although SAP has mainly corporate customers, it recognizes the importance of users within the firms, who need to operate and work with software. This observation from the case study is also reflected in the establishment history of SAP (Meissner, 1997): the establishing team of SAP were former employees in IBM, where they were assigned to individual corporate customers to develop software programmes according to the context-specific needs. They noticed that a standardized software programme would be more efficient for solving the problems of customers from different industries. Even though they were IBM employees, they were not allowed by IBM to develop such a programme, since they were not working for the R&D branch (Plattner et al., 2000).

SAP co-founder Hasso Plattner (Plattner et al., 2000) still finds positive aspects in the role of IBM’s corporate culture which contributed to SAP’s corporate culture. According to him, IBM’s corporate culture was very customer-oriented, which also inspired SAP, becoming a key factor in the success, as reflected in the case study. Plattner adds that IBM had a very mechanistic organization structure in the 1970s, which was their point of departure to establish SAP (Plattner et al., 2000). Just like the era of the establishment of SAP was associated with a rapid change due to the emergence of the software market, the process of unbundling software from hardware (Humphrey, 2002), the era of the establishment of SAP India and SAP Labs India was associated with both a rapid change due to the changing business laws and rules as well as a dynamic IT branch in India driving the country’s competitiveness (Srinivasan & Neumann, 2009). Therefore, the importance of an organic organizational structure was (and still is) crucial for creating and keeping the competitive advantage.

The era after the appointment of Ferose as managing director corresponds to the evolution of SAP Labs India from a mechanistic to an organic organization (Radjou et al., 2013) where complaints and health problems of employees were solved by giving the employees more freedom to search for new things, supporting them with everyday innovative activities, creating more free time to introduce the employees to arts and culture (Radjou et al., 2013) as well as a more thorough healthcare programme (Times Ascent, 2014). These aspects reduce the possibilities of self-selection and self-censorship biases. Creating and keeping a competitive advantage requires a good relationship with customers, who are identified as persons who use the SAP software within firms. This concept can be associated with the bottom-up nature of innovation, and it can be combined with daily activities to promote innovative thinking for knowledge discovery, as found out in the case study. Perception of innovation in a firm involves two strategic mechanisms, knowledge search and knowledge sharing (Alguezaui & Filieri, 2010). Knowledge is dispersed (Hayek, 2002 [1968]) and its discovery needs the combination of skills and capabilities of different individuals, as well as their ability to perceive the information given by the market on the issues of needs and urgency. The latter point is important for the dynamic Indian economy, where the demand side needs quick response from the supply side.

The first consensus on the issue of being closed to users implies innovation being a very personal experience. According to Hayek (2014 [1952]), the perception of the external world is the product of an experience, which is never objective—it is rather contingent on theories and mental rules (Burczak, 2006). This subjective and contingent nature of the perception plays a role in the innovative processes. A person who is part of an innovative process cannot be acting and observing his own behaviour simultaneously, since the use of capabilities is selective—an impediment for the corporate innovative activities, implying a decoupling in the organization of dynamic capabilities into two parallel processes of using capabilities and monitoring these (Schirmer & Ziesche, 2010). For the development of organizational policies, Schirmer and Ziesche (2010) suggest decentralization of power by bottom-up management of ideas, empowering the self-control and self-management of employees. Self-management can help the employees in learning complex behaviour on their own. Therefore, some behavioural rules may be needed for this self-management system, which brings the reader to the second consensus in the case study.

The second consensus in the case study is the feeling being self-empowered. It is associated with being innovative for ‘empowered users’ (cases 1, 5 & 7), ‘freedom to seek for new things’ (cases 2, 3 & 6) and feeling responsible and entrusted (case 4). Self-empowerment is a part of self-management (McKinlay & Taylor, 2014). As a tool of decentralizing the power, it goes back to Drucker (2009 [1975]), who described the ideal-typical situation ‘in which every man sees himself as a “manager” and accepts for himself the full burden of what is basically managerial responsibility’ (Drucker, 2009 [1975], p. 284, italics emphasized by Drucker).

Innovation-oriented self-management is reached through the nudging strategy. Nudging uses behavioural rules to reach a certain target, for example, innovation. SAP Labs India aims to deliver innovative products satisfying the needs of individual users. The rapidly changing business environment and the dispersion of knowledge are the challenges faced during the innovation processes. Instead of having a vertical hierarchical structure, SAP Labs India decentralizes the innovation process by giving its employees the freedom to seek for new things (case 3).

This freedom is accompanied by giving the employees the feelings of being responsible and trusted by the firm (case 4). These two values are parts of the perception of employees that SAP Labs India is taking them seriously (cases 3–6) and allowing them to make mistakes (cases 2 & 6). According to Plattner, this is one of the things which fail in SAP Germany (Kroker & Böhmer, 2013). Not every employee is enjoying this freedom for the sake of innovation, some even try to misuse this freedom to establish their own ‘justice’ but fail (Chaithanya Swamy, 2014).

An important issue regarding innovation as a spontaneous order is the fact that Hayek never mentioned any rules of behaviour that can lead to the formation of a spontaneous order (Vanberg, 1986). The use of nudging in this concept can be seen in triggering this target without restricting the individual freedom. It provides employees an open space to search for new things, discover not only new knowledge but also own capabilities with their own will—including making mistakes and learning from them (cases 2 & 7).

Nudging proves itself to be effective in decentralizing the innovation process to the free will of employees and scholars without intervening to their freedom or losing the corporate respectability in the eyes of them. It is not a pre-determined trial and error process, since neither the managers nor the innovators know the outcome of the innovation process—however, it was observed the Apphaus Bazaar was useful for ‘compressing the whole concept-to-market cycle to 90 days’ (Radjou et al., 2013), whereas SAP Germany would need over two years for the same process.

Conclusion

If one is interested to learn more about innovation in SAP, SAP Labs India is the right place to look at. The employees and scholars shape the innovation process with their ideas, moving towards discovery of new knowledge. A managerial implication by Drucker (2008) was to focus on the perceptions. Also SAP co-founder Dietmar Hopp (Borchers, 2015) said ‘Listen to [the employees]. If we appear like sorcerers, then we will never know what we need.’ For SAP Labs India, the shift towards a flexible organizational structure reflected his way of thinking. The perceptions of employees and scholars reflect what they experience in different innovative processes. Interactions with customers and the feeling of self-empowerment are the two points of consensus in the case study based on six employees and a team. The latter issue has been subject to change management in organizations through decentralization of power with self-management as one possible instrument. Both historical evidence (Radjou et al., 2013) and the case study suggest that self-management was reached successfully by nudging. The case study opens a new front of discussion to focus more on perceptions in the innovation process, and how to shape this process in the organizational structure where a competitive, rapidly changing business environment is expecting quick and sound reactions.

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