Inside the Catena-X automotive industry consortium - the biggest story SAP isn't talking about (yet)

When I first heard rumblings about SAP's "automotive alliance" more than a year ago, I was wary: was this just a clever backdoor into a product-centric talk about Ariba?

But then, I became intrigued. During a podcast with my retired colleague Den Howlett, SAP CEO Christian Klein spoke passionately about the initiative. Though I've had some testy back-and-forth with Klein at times, he is an exec I pay close attention to.

Then, we have this mysterious March 2021 press release, Catena-X Automotive Network Picks Up Speed. I say "mysterious" because there is vagueness here, such as: "The Catena-X pilot projects are focused on five areas of application that have been jointly defined." Why would I have interest in a mysterious press release? When was the last time you saw these types of companies banding together?

The founders of the partner network include BMW AG, Deutsche Telekom AG, Robert Bosch GmbH, SAP SE, Siemens AG and ZF Friedrichshafen AG.

Additional companies have joined the initiative, including Mercedes-Benz AG, BASF SE, Henkel AG & Co. KGaA, Schaeffler AG, German Edge Cloud GmbH & Co. KG, ISTOS GmbH, SupplyOn AG, the German Aerospace Center (DLR), Fraunhofer-Gesellschaft zur Förderung der angewandten Forschung e.V and ARENA2036, as well as several small and midsize enterprises (SMEs).

Yes, this has a decidedly German flavor, at least in the early stages, but these types of alliances are not typical. Then you see:

The Automotive Alliance will operate under the name Catena-X Automotive Network (Catena-X). As an implementation-oriented network and to help ensure openness and neutrality, Catena-X plans to organize itself as a registered association in Germany..

Openness, neutrality, and... enterprise software?

Openness and neutrality - not what you typically see from enterprise software vendors. I believe the future of ERP is not back office, but vertical backbone. That's why industry consortiums built on open standards really catch my eye:

Catena-X sees itself as an extensible ecosystem in which automotive manufacturers and suppliers, dealer associations and equipment suppliers, including the providers of applications, platforms and infrastructure, can all participate equally. The purpose of the association is to create a uniform standard for information and data-sharing throughout the entire automotive value chain.

But in the summer/fall, the PR machine around Catena-X went quiet - though the Catena-X web site does have news items (and a board of directors listing). Where was the fall update Klein alluded to in the podcast? Was Catena-X gaining momentum, or, perhaps, caught up in regulatory red tape, or pandemic supply chain distractions? I decided to find out.

Soon, I found myself on a video call with Hagen Heubach, Global VP, Industry Business Unit Automotive at SAP, and Board Member of the Catena-X Automotive Network. As Heubach told me, pandemic supply chain pressures, including the infamous chip shortage, are the sparks that ignited Catena-X:

The automotive industry is completely under transition. There is a huge shakeup, with the semiconductor crisis - our chip shortage and raw material shortage. These are key things we're trying to address with the automotive alliance. 

Heubach leads SAP's solutions for automotive and mobility globally. But this is not a vendor-specific problem to solve. Nor is it something one automotive company can address, withholding cooperation from other heavyweights. Heubach:

I was involved from day one in Catena-X. When we launched it, we talked together with the key players of the industry... We found out very clearly, 'Hey, there is so much more value along the value chain or supply chain, that is still buried. And we have so much more potential to optimize, if we all move this away from a classical peer-to-peer connection, to a network-based approach.'

Of course, that means a secure, neutral, and interoperable data exchange. As Heubach put it, no one will share data if your network is not trusted - and you must always be in control of your data. Then the use cases can be built:

So, we're addressing the real use cases, like parts, traceability, demand capacity, quality management, sustainability - and put them together with the data sovereign cloud.

Catena-X, the organization, was formally launched in May 2021, with an alliance of eight automotive partners.

At the heart of this is a movement saying, 'Hey, we all commit to this fundamental concept of data sovereignty, fostering the data exchange and the transparency along the value chain for automotive.'

The plan is to expand that value chain membership, beyond the initial industry adopters, into mobility service providers, IT providers, and OEMs:

If we all come together and join forces, building this network in the relevant use cases for it, then we really have a win-win situation.

The momentum is building. As of our November talk, Catena-X has 62 members, spanning well beyond Germany. The German government is also helping to fund Catena-X; open source is a major design principle.

We are building significant parts within Catena-X as open source components... We have founded an open Eclipse Foundation project, where several companies are building. SAP is building in there now; Siemens is building in their two systems, BMW, Porsche and so forth.

As always, the proof is in the results, not in the press releases. When can we expect tangible product?

The first POCs and MVP is out there. We're planning to be live by Q1 2022. The first real use cases; the first proof points are there. We are also addressing this from SAP's side with our portfolio, the first needs and the use cases. Most of all, we are going to make our customers fit for the future, to be Catena-X ready.

First up? A traceability use case, dubbed "Logistic business network material traceability," with a couple of add-ons on top of it, addressing parts tracking, and the re-use of parts. "It's quite a compelling use case," says Heubach.

My take - give me industry consortiums over proprietary platforms

For those who don't take this effort seriously because of its low profile, time to reconsider. I expect SAP to advance the promotional side of Catena-X in the new year, as projects go-live.

I'm not exactly an Ariba fanboy. If you still think that this is a business-networks-marketing-Trojan-Horse, I can only tell you that Heubach didn't use the Ariba word once, and he only mentioned S/4HANA a few times. In the last year, to push their business network advancements, SAP has been using an epically cringe-worthy catchphrase, "the network of networks." But: that doesn't mean SAP is wrong about the future of industry networks. Catena-X, with its push for open standards, members who may or may not run SAP software, and competitors turning into cooperators as they tackle industry stumbling blocks - that has the ingredients of a terrific story.

Of course, there is a big product benefit for SAP as well. Heubach tells me SAP intends to tie S/4HANA into the Catena-X platform, so automotive customers can pull in those open source components. It's instructive how much you can accomplish for your own customers - when you set a broader mission. Heubach thinks this is our future: expecting one vendor's platform to bring an industry together is legacy thinking.

Along the way, ERP changes. The future of ERP as a back office system of record is a bleak commodity. The future of ERP as an operational backbone for your industry - that's where ERP gets interesting.

Blockchain fans may protest I'm rubbing it in here, but I think it's important to note that Catena-X is not built on blockchain. Blockchain krishnas would have us believe that in order to provide (supposedly) immutable trust amongst industry value chains, that blockchain would be a revolutionary force here, a tech no-brainer.

That misguided thinking has led to a ridiculous, overextended hype cycle. It's distracted us from the real point: these industry problems are not supposed to be solved with wonder-tech, but by people (and companies) working together in bold new ways. The technology used will be whatever tool fits best. Maybe it's blockchain (or other distributed ledgers), and maybe it's not.

I won't get into all the tech details here, but Heubach says they needed a data architecture that provided all participants with a different level of network trust and data control:

The data is stored where it should be, in the ERP systems, in the data lakes. What you do is just give access rights to each other, to share and enable data across a business network.

A key component is Gaia-X, the International Data Spaces (IDS) standard. The current setup gives participants granular control over data access rights, controls they can constantly adjust. Heubach doesn't rule out the use of blockchain in the future, but it didn't factor into this initial launch.

Other industries could gain from this approach - industries where the stakes are high, and SAP's footprint is significant. Health care comes to mind, with the same thorny issues of data sovereignty and privacy, along with the backdrop of massive transformation. Heubach's team has received inquiries from other verticals. He sees no reason why these same approaches couldn't eventually be adapted elsewhere. Now that would be a refreshing break from all the generic blather we hear from vendors about "industry clouds." For now, Heubach knows they must prove this model out:

This is so much more of a joint [partnership], what you can create if you're following an ecosystem approach, rather than going on a single platform, locked-in approach. That's not the type of style we are pursuing. Everything needs to be open to be interoperable. That's the key.

Give me more of that type of project anytime.