SAP Q4 FY2015 - a critique for the road ahead

Den Howlett Profile picture for user gonzodaddy January 22, 2016
SAP's Q4 2015 results have now been fully released but as we look forward, what can we tell? The outlook its impressive but much has to be done to get from here to there.

SAP rev mix
As I said in earlier stories, SAP produced a nice surprise for the final quarter of 2015, demonstrating strong momentum in the cloud business even as the on premises business starts to fall away. The graphic at the top of this post is informative and comes from Luka Mucic, CFO and COO SAP's analyst presentation.(PDF) It confirms what many of us have been thinking for a while. The real business model transition is underway now and will play out over the next 24 months. I think the passing of the 10% of total revenue mark in 2015 is a psychological barrier that should make the next steps a little easier for the field. But what will make SAP's transition far more effective is the emergence of use cases and strong customer stories. While it is nice to hear that EC has passed the 1,000 customer count, I am far more persuaded by this from Thomas Otter, global VP at SAP who wrote:

This morning on the plane, I thought about some of the EC customers that impacted my day in some way. 

The coffee/s I drank, the toothpaste I used, my shaving stuff, the shower and sink manufacturer, my socks, my shoes, my jacket, the weather app I checked on, the phone network, the lenses in my glasses, the fridge in the hotel room, my briefcase, the elevator I took to the lobby, the tyres on the taxi that took me to the airport, the fizzy water I drank, the football boots worn by the dude that scored the goal in the Spanish league last night, the bolt holding up the roof in airport terminal, the yoghurt I had for breakfast, the shop I bought it in, airline that is flying me home, the satellite guiding it, the seat I’m sitting on, the publisher of the book I’ve just finished reading, and the maker of the guitar that David Bowie* played on the single I’m listening to as I write this. All of these companies run EC. 

While it is great that the SAP press department has called out EC’s success in the press release and EC has featured prominently in the last couple of earnings calls, I’d like the mention the successes we are having with the other SuccessFactors products. 

Onboarding is the fastest growing product in the portfolio, and has smashed every expectation. The feedback from the early adopters of intelligent services and the integration center is very encouraging. The multiposting acquisition is already gelling. I’m fired up to work with Simon and his team. More than ever, I’m convinced that we have the right approach and mix of organic and acquired innovation.

I have known Otter for many years and when he speaks publicly on SAP matters - which is rarely - then it is worth your and my attention. So, amen to that and thanks for sharing the links to customer success stories but then I think there needs to be more. Much more. Let's get those same and more customers in front of us at SAPPHIRE and other events. Let's hear the good, the bad and the ugly so that there is a more balanced assessment of success. What about hybris? Fieldglass? Ariba? Jam? They all play into the mix.

Good news aside, there are genuine challenges ahead for SAP. Christian Wieland succinctly outlines the broader arguments swirling around S4/HANA when he says:

While 2,700 paying S/4HANA customers is a tremendous result for a product that is not even finished yet (which doesn’t mean that it hasn't delivered any customer benefits so far), even SAP knows that a lot of this has been driven by its discount politics. Well done, it worked out. But there is a difference in buying and using S/4HANA. And if customers don’t proceed to implement S/4HANA and the SAP HANA platform fast, then the innovations outside the backend world will be occupied by other vendors.

I will not spoil readers' pleasure by outlining his discussion about how this plays out for SAP customers except to say that Wieland does something that makes perfect sense. Instead of attempting to back hoe 'digital transformation' into the SAP stack, he breaks down the different types of transformation that are ahead for customers. He offers a variety of simply understood roadmap contexts that customers might wish to review. Doing this allows us to envision how SAP can get customers out of the 'not ready' rut and into active consultations about the future. It is a set of topics to which I will return in the near future.

One problem. As Wieland points out, SAP customers have many different approaches to where they wish to take their landscapes. The greatest risk for SAP is that it is not part of those crucial conversations. Simply arguing that SAP is providing the 'end to end' landscape for 'digital transformation' has not and will not work. It already runs the risk of being consigned to secondary status as a component in a much more expansive landscape.

When taken in that context, it therefore does not surprise that while Mucic is bullish on the 2016-17 outlook, SAP is not changing the 2020 ambition. In short, SAP is hedging its bets for the medium term.

I don't blame them.

In the meantime, I am scheduled in the near future to talk with Rob Enslin who heads SAP's global sales effort. I will be exploring some of these themes and asking him how he sees the delivery playing out.

Disclosure: SAP is a premier partner at time of writing

Graphic via SAP analyst presentation, featured image via SAP

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