Firm Growth and Innovation in the ERP Industry: A Systems Thinking Approach

TL;DR

This paper uses systems thinking to model how firms like SAP achieve and sustain growth in the software industry, analyzing the impact of disruptive innovations like cloud computing.

Contribution

It develops models to understand firm growth and innovation in technology-intensive markets, incorporating effects of disruptive innovations and network dynamics.

Findings

Product differentiation and learning effects contributed to SAP's growth.

Networks and complementors played a key role in sustaining growth.

Cloud computing disruption requires firms to develop attractive cloud offerings.

Abstract

Achievement and sustenance of growth are essential themes in organizational literature. In our paper, we develop models using systems thinking approach to understand how firms achieve and sustain growth in a technology-intensive product domain. We augment these to explain the possible impact of a disruptive technological innovation. We use enterprise software industry as the context where SAP has been acknowledged as the market leader. We find that product differentiation and learning effects helped SAP establish itself, and this growth was further sustained through networks and complementors. Introducing cloud computing as the disruptive innovation, we explain its impact on a firm. Analysis reveals that for the next wave of growth to occur, and to tap into newer markets, it would be imperative for SAP to create attractive cloud based offerings. We also discuss how the model can be enhanced by considering competitor dynamics.